New Era for Investors: Trump’s Victory Spells Relief for Top Earners
Capital Gains Tax Rates Unlikely to Rise
The presidential election outcome has brought a sigh of relief to high-income investors, as the likelihood of increased individual taxes, including levies on investments, has decreased significantly. Vice President Kamala Harris’ proposal to hike long-term capital gains tax rates to 28% for those earning over $1 million annually is now off the table.
Tax Experts Weigh In
Erica York, senior economist and research manager with the Tax Foundation’s Center for Federal Tax Policy, believes that higher capital gains tax rates are “entirely off the table” under a Trump presidency and Republican-controlled Congress. Even with partial Republican control, York expects capital gains tax policy to remain unchanged.
Current Tax Landscape
For 2024, investors pay long-term capital gains rates of 0%, 15%, or 20%, depending on taxable income. Assets owned for one year or less are subject to regular income taxes. The taxable income thresholds will increase in 2025. Additionally, higher earners pay the net investment income tax (NIIT) of 3.8% on capital gains, interest, dividends, rents, and more once modified adjusted gross income exceeds certain thresholds.
Potential Changes Ahead
While Republicans may attempt to eliminate the NIIT, this move could significantly add to the federal budget deficit, which topped $1.8 trillion in fiscal 2024. Howard Gleckman, a senior fellow at the Urban-Brookings Tax Policy Center, notes that this is a significant item that would require careful consideration.
Impact on Financial Advisors
The shift in power dynamics in Congress and the White House has significant implications for financial advisors. With Republicans securing control of the Senate and potentially maintaining a narrow majority in the House of Representatives, advisors can expect a more stable tax environment for their high-income clients.
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