Since the Infrastructure was passed, will Long Term Capital Gains be Retroactive

Home Fairmark Forum Taxation of Investments Since the Infrastructure was passed, will Long Term Capital Gains be Retroactive

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  • #71387
    TaxationRobbers
    Participant

    I wrote a New Topic on this in 2020, which is now closed & cannot be replied to. I am asking anyone, including Kaye Thomas to provide any information on whether Long-Term Capital Gains will remain as they have always been, as it is unconstitutional to do what Biden has done, which is to change this at all; yet he claimed this would be retroactive to I believe, April of 2021.

    Below, I have copied two of the posts for clarification:

    September 4, 2021 at 5:00 am#71035REPLY

    TaxationRobbers
    Participant
    If you sell in 2021 a stock you’ve held for one year, will you be taxed at the lower long-term capital gains rate?

    I read that it would be unconstitutional and struck down in the courts if Biden attempts to try to make his still-unpassed elimination of long-term capital gains rates retroactive for 2021.

    September 4, 2021 at 3:23 pm#71036

    Kaye Thomas
    Moderator
    Congress has never enacted a tax law that is retroactive in the way you indicate, so we don’t have a definitive answer to the question whether it would be unconstitutional. Language in at least one Supreme Court opinion suggests that Congress would be unwise put this issue to the test, and it seems unlikely that this Congress or any other will ever do so. If the proposal to eliminate lower rates for long-term capital gains becomes law, it will have a prospective effective date, though not necessarily from the date of enactment. My guess is that it would be effective from the date the legislation is approved by the House Ways and Means Committee, on the theory that this action places taxpayers on notice about the change.

    #71397
    Kaye Thomas
    Moderator

    The infrastructure law does not change the taxation of capital gains. We don’t know yet whether the final version of the second piece of major legislation under consideration will contain a change in capital gains, or whether it will get through Congress.

    It is not unconstitutional to change the taxation of capital gains. There is no reason to be concerned about a retroactive change, as this has never happened before and is highly unlikely in this case. However, a change such as this can be prospective from the date of committee action, even though final enactment of the law occurs some time later.

    Please confine your remarks here to issues of taxation. There are plenty of places to post political commentary; this is not one of them.

    #71399
    TaxationRobbers
    Participant

    Kaye Thomas,

    Thanks for your reply. It is your site, so you make the rules. However, I don’t see how you can separate the politics involved here, as it is directly and intimately connected to the topic.

    You can’t discuss major Capital Gains changes without bringing the very source of any such changes without bringing up the government. And, after all, tax law changes are part and parcel of the government, be it the IRS or the administration.

    This applies as well to the final version of the second piece of legislation. I am confused, however, as to when this would be applicable to stock bought or sold prior to the date of committee action. I am unclear as to whether it will be legal for such changes to take effect as of the date of committee action, “even though final enactment of the law occurs some time later.”

    A clarification would be appreciated.

    #71400
    Kaye Thomas
    Moderator

    Here is how it works. If Congress has an increase in capital gains tax under consideration, it needs to bring that proposal before the House Ways and Means Committee. Prior to action by that committee, the proposal is merely an idea supported by certain members. If the committee approves the proposal, however, official action has been taken to move the proposal forward, and it becomes much more likely that the proposal will become law.

    Yet a number of hurdles remain. The House as a whole must approve the proposal, then the Senate takes it up, first in the Senate finance committee and then the Senate as a whole. Almost always there are differences between the bills passed in the two houses, so there is a joint conference committee to hammer out the details. The result there isn’t identical to what either house passed, so now both houses must vote again, and if both approve, the bill goes to the president for signature.

    All this takes a fair amount of time, and if the increase in capital gains tax didn’t apply until the day the president signs the bill into law, there would be a long period in which people were dumping stocks and other assets to avoid having their gains taxed at the higher rate. To avoid this economic disruption, the effective date is set as the date the Ways and Means Committee approved the increase. The change is prospective from the date people were effectively put on notice that it was likely to occur, so no one is unfairly surprised. This approach has been followed many times in the past, and there is no reason to believe it would be held unconstitutional.

    #71401
    TaxationRobbers
    Participant

    Kaye Thomas,

    Thanks for the detailed description of the process.

    I still remain confused, even after searching for news articles on this.

    However, the latest article I could find was the CNBC link one, which says the Bill is passed. Which to me says, any stock we own Long-Term & haven’t sold yet will be subject to the higher rates that were in that Bill. Whether this will become retroactive is unclear, though the fact it was passed & approved by the Ways & Means Committee would indicate to me it would be retroactive to April, I believe.

    https://www.cnbc.com/2021/11/05/house-passes-bipartisan-infrastructure-bill-sends-it-to-biden.html

    However, I can’t find a definitive answer to whether the initial rate increases were changed, and what makes this more confusing. The following link to Schwab article states that the Capital Gains tax increase was NIXED from the larger 2nd Bill, which has only left me more confused:

    https://www.schwab.com/resource-center/insights/content/congress-drops-most-individual-tax-increases-revised-economic-package

    In any case, since the 1 Trillion Infrastructure Bill is past all obstacles, being passed, will not this Bill (not the bigger 2nd one) have passed the new Capital Gains taxes into law, or would this be trumped IF the 2nd Bill get approved by both the House & Senate?

    I think I’ve outlined my confusion here.

    #71410
    TaxationRobbers
    Participant

    Kaye Thomas,

    Would you kindly respond to my last post that answered yours. Thank you.

    #71411
    Kaye Thomas
    Moderator

    The answer is simple: there is nothing at all about capital gains rates in the infrastructure bill. They are the same now as before that bill became law.

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