02 Feb Where are capital gains rates headed?

Q. I’ve heard Trump’s plan for tax rates. What is the plan for long- and short-term capital gains?
—Investor

A. We’re expecting lots of changes to the tax code from President Trump.

Here’s a look at what you can expect for tax brackets and the future of the Alternative Minimum Tax (AMT).

President Trump has said he plans to keep the long-term capital gains rate the same, which is a maximum rate of 20 percent, said Gail Rosen, a Martinsville-based certified public accountant.

But other changes for capital gains are expected.

Currently, on both short- and long-term capital gains, taxpayers pay an additional 3.8 percent net investment tax, Rosen said.

“This 3.8 percent tax was enacted in 2013 under Obamacare and would be repealed under Trump’s plan,” Rosen said.

The 3.8 percent tax currently affects single taxpayers whose income is over $200,000. For those married filing jointly it’s $300,000, and it’s $150,000 for those married filing separately, Rosen said.

Plus, right now short-term capital gain rates are taxed as ordinary income.

“Trump proposes reducing the tax brackets to 12, 25 and 33 percent, therefore the tax rates could decrease on short-term capital gains, and the top ordinary rate would be 33 percent versus the current top rate of 39.6 percent,” Rosen said.

Keep an eye on Congress to see what tax changes pass and when. The new administration has been busy, but we expect to see long changes before the year is over.

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This post was first published in February 2017.