Menu x
x
Advertiser Disclosure
News & Trending Tax News

Taxes on Unrealized Capital Gains: 4 Reasons You Don’t Need To Worry

Here's what you need to know about a signature proposal from Kamala Harris.

filling us 1040 tax form
Adam Palasciano
By Adam Palasciano
Chris Kissell
Edited by Chris Kissell
Updated Dec. 30, 2024
Fact checked

Vice President Kamala Harrisnrecently signaled support for taxing unrealized capital gains.

The suggestion stirred up controversy and raised concerns among average folks who are trying to build wealth. But in truth, most everyday investors likely will not have to worry even if a plan to tax unrealized capital gains becomes law.

Here are the facts about what is being proposed.

Steal this billionaire wealth-building technique

The ultra-rich have also been investing in art from big names like Picasso and Bansky for centuries. And it's for a good reason: Contemporary art prices have outpaced the S&P 500 by 136% over the last 27 years.

A new company called Masterworks is now allowing everyday investors to get in on this type of previously-exclusive investment. You can buy a small slice of $1-$30 million paintings from iconic artists, all without needing any art expertise.

If you have at least $10k to invest and are ready to explore diversifying beyond stocks and bonds,see what Masterworks has on offer. (Hurry, they often sell out!)

What is Harris proposing?

Romolo Tavani/Adobe plant growing in savings coins

Harris has expressed support for a proposal by current President Joe Biden to tax unrealized capital gains. These are gains that are “on paper” only — investors have not yet realized the gains because they haven’t sold the asset that has appreciated.

Here are the basic points of the proposal:

  • There would be a new tax on unrealized capital gains.
  • The tax would apply only to individuals with at least $100 million in wealth who don’t pay at least a 25% tax rate on their income, including unrealized capital gains. Payments could be spread out over some years.
  • Individuals with at least $100 million would only pay taxes on unrealized capital gains if at least 80% of their wealth is in tradable assets. That means investments in real estate or shares of private startups would escape the tax. However, folks in these last two groups would face a deferred tax of up to 10% on unrealized capital gains upon selling the assets.

The goal is to tax the wealthiest Americans on the growth of their investments each year rather than only after they sell them.

Want to learn how to build wealth like the 1%? Sign up for Worthy to get ideas and advice delivered to your inbox.

The tax won’t impact most people

SUPREEYA-ANON/Adobe paper currency in wallet

The proposed tax on unrealized capital gains would apply only to individuals with assets exceeding $100 million, meaning most Americans would not be affected.

Most taxpayers would find that this tax would not directly impact their financial situation. The proposal specifically targets ultra-wealthy individuals, while the average investor or retiree would emerge unscathed.

Even a lot of rich people wouldn’t be affected

Sergey/Adobe burlap with dollar banknotes

There are the rich, and then there are the mega-rich. If you are merely wealthy, the new tax would not impact you.

That is because most wealthy people with millions in assets are still not rich enough to meet the $100 million threshold.

Instead, most rich investors would continue paying taxes on their gains only when they realize them.

Get a free stock valued between $5 to $200

Secret: You don't need thousands of dollars to buy thousand-dollar stocks or create a diverse portfolio.

Robinhood offers a method of investing called “fractional shares.” On its own, one share of a single stock could cost a lot of money, making it difficult to diversify. Robinhood allows you to buy pieces of stock instead, so you have the option to build a diverse portfolio quickly.

Let’s say you want to invest $250, as an example.

With that amount, you could build a relatively diverse portfolio with an investment of $50 in a big tech stock, $50 in a retail stock, $50 in an energy stock, $50 in a manufacturing stock, and $50 in a bank.1

Even better news? Add a Robinhood Gold membership, and you’ll get access to 4.25% (as of 11/15/24) APY2on your uninvested cash3and the ability to buy and sell stocks 24 hours a day, 5 days a week.

Open and fund a Robinhood account and earn up to $200 in stock

The tax will probably never become law

chase4concept/Adobe red stamp denied

Even if you have an extra $100 million sitting around, there's still a pretty good chance you will not have to worry about this type of tax.

While the proposal has garnered considerable attention, its likelihood of becoming law is slim. It would need to pass Congress, and given the current political climate, that’s a tall order.

To enact this type of legislation, Democrats would likely need to take control of the presidency, the House, and the Senate.

While it is possible that Democrats could sweep November’s elections, most experts view that outcome as unlikely at this moment. And it’s possible that even with full government control, Democrats couldn’t muster enough support to make the proposal a reality.

Even if the tax does become law, the courts might kill it

WESTOCK/Adobe files on judge table

If a tax on unrealized capital gains became law, it would almost certainly face legal challenges. Some experts have argued that it's unconstitutional.

There is no telling how courts will eventually decide the question, but there is at least a chance that the court system — including the U.S. Supreme Court — will kill the new tax.

Bottom line

Proxima Studio/Adobe accountant working with us tax forms

While discussions about taxing unrealized capital gains may sound alarming, this proposal targets only the wealthiest individuals.

Such a change wouldn’t affect their tax or investment strategies for most people. So, if you are ready to start investing, you probably shouldn’t let this proposal deter you.

More from FinanceBuzz:

Lucrative, Flat-Rate Cash Rewards

Wells Fargo Active Cash® Card
5.0
info

Wells Fargo Active Cash® Card

Apply Now
Rates and fees

Current Offer

$200 cash rewards bonus after spending $500 in purchases in the first 3 months

Annual Fee

$0

Rewards Rate

Earn unlimited 2% cash rewards on purchases

Benefits and Drawbacks
Card Details

Must-Read Buzz

10 Savvy (And Legal) Ways To Avoid Capital Gains Tax on Real Estate arrow right

10 Potentially Costly Misconceptions About Taxes and Life Insurance arrow right

8 Surprising Things That Can Happen if You Die Without a Will arrow right

10 Crucial Items People Often Forget to Include in Their Will arrow right

9 Critical Estate Planning Documents You Need Beyond a Will arrow right

Subscribe Today

Want extra-cash moves to come right to you?

Stop browsing endlessly. Get proven ways to earn pocket money, help cover rent, and crush your debt — sent to your inbox daily.

By submitting this form you agree to receive emails from FinanceBuzz and to the privacy policy and terms.