US elections are approaching and the debate about taxing unrealized gains from investments is gaining traction. Yes, you read that right: Americans could face a tax on fictitious profits or a capital tax on unrealized gains. But let’s see if it will apply to all taxpayers.

Gains from stocks, bonds, gold, home property or any other financial asset tax in most countries. Such gains are taxed only after the asset is sold. But a proposal in President Joe Biden’s latest budget document proposes imposing a tax on unrealized gains from assets. This means American taxpayers will have to pay annual taxes on the increased value of assets such as stocks and homes, even if they are not sold.

Taxation of unrealized gains will work like this: Let’s say you invest $1 million in stocks that are worth $1.5 million in 12 months. Even if the stock is not sold, taxes will be due on the $500,000 in (unrealized) gains.

But the proposed tax on unrealized gains from assets would not affect most Americans because the rules would only apply to taxpayers with a net worth over $100 million.

Biden’s Proposal

President Joe Biden’s latest budget document states: “The proposal would include a minimum 25 percent charge to total income, generally including unrealized capital gains, for all taxpayers whose wealth (i.e., assets minus liabilities) exceeds is the application of tax. 100 million dollars.” The proposal will be effective for taxable years beginning after December 31, 2024.

Accounting for tax on unrealized gains

The proposal allows taxpayers to pay the first year’s minimum tax liability in nine equal annual installments and in subsequent years in five equal installments.

Taxpayers with wealth above the threshold will be required to report the total basis and total estimated value of their assets (as of December 31 of the taxable year) to the Internal Revenue Service (IRS) on an annual basis, separately by asset class. the total amount of liabilities and assets in each specified asset class. Tradable assets, such as publicly traded stocks, will be valued using the year end. Sunday prices.

Reality Check

What all this means is that the Biden administration’s budget calls for a tax on unrealized gains from assets only for taxpayers with a net worth of at least $100 million, which would mean just 0.01 percent of American taxpayers. The proposed 25 percent minimum income tax is proposed to be applied to extremely wealthy taxpayers.