As part of his 2025 fiscal year budget proposal, former President Joe Biden suggested an unrealized capital gains tax for wealthy individuals. Specifically, the tax would have required taxpayers with a net worth above $100 million to pay a 25% minimum tax on unrealized capital gains.
Former Vice President Kamala Harris initially supported the move, which was dubbed a “billionaire minimum tax.” During her unsuccessful presidential campaign, the unrealized capital gains tax proposal was not addressed. The concept earned both support and criticism, partly due to misinformation about which taxpayers would be affected. Learn the details here.
Key Points
• The unrealized capital gains tax proposal targeted individuals with net worth over $100 million.
• The proposed tax rate of 25% would have applied to unrealized gains, or increases in the value of an asset that has not yet been sold.
• Unrealized gains are currently not taxable under existing laws.
• The proposal aimed to ensure that ultra-wealthy individuals paid a fair share of taxes.
• Critics argued the proposal could disrupt markets and discourage investment.
What Are Unrealized Gains?
Capital gains are the profits you realize from the sale of an asset. More simply, it’s the difference between what you paid for the asset and what you sell it for.
If you’re still not sure, here’s another way to phrase unrealized capital gains tax meaning:
Unrealized capital gains are profits you haven’t pocketed yet because you haven’t sold the underlying asset.
Why does that matter? Because realized gains are taxable; unrealized gains are not.
You don’t need to report unrealized capital gains to the Internal Revenue Service, or IRS. Reporting is only necessary once you sell the underlying assets for a profit. You can, however, use the value of the assets you own to calculate your net worth and map your financial planning strategy. An online budget planner is a great place to get started with developing your money blueprint.
Track your credit score with SoFi
Check your credit score for free. Sign up and get $10.*
and get $10 in rewards points on us.
RL24-1993217-B
Recommended: How Much Do You Have to Make to File Taxes?
What Happens If Unrealized Gains Are Taxed?
If unrealized gains were taxed, the result might be a tax bill. That would have been the immediate impact for wealthy taxpayers who were subject to such a tax as it was proposed. If implemented, the tax would have targeted the top 0.01% of U.S. households who are in the very top tax bracket.
Someone subject to an unrealized capital gains tax might need to rethink their tax strategy. They might have to reconsider how they utilize various tax breaks, such as tax loss harvesting, to counterbalance any increases in what they owe.
Kamala Harris’s Unrealized Capital Gains Tax Proposal
While a “Kamala Harris unrealized capital gains tax” proposal made the rounds during the lead-up to the 2024 election, it was initially suggested by former President Biden. Vice President Harris signed off on the proposal, and it later became a discussion topic during her presidential campaign, although she did not publicly address it.
What are unrealized capital gains tax rates? The proposal would have imposed a 25% minimum income tax on unrealized capital gains for taxpayers with a net worth exceeding $100 million.
Other tax measures proposed during the Harris campaign included:
• Raising the long-term capital gains tax rate for realized gains and qualified dividends to 28% for individuals with taxable income above $1 million. (The top tax rate on these gains is currently 20%.)
• Increasing the top individual income tax to 39.6% on income above $400,000 for single filers and $450,000 for joint filers. (Currently the top tax rate is 37%.)
• Limiting like-kind 1031 exchanges to $500,000 in gains.
These types of taxes, as well as the unrealized capital gains tax, are designed to primarily impact high-income earners and wealthier taxpayers.
Assessing Tax Consequences
Taxing unrealized capital gains could have both positive and negative consequences for individuals and the economy as a whole. Hypothetically, the money generated through an unrealized capital gains tax would be used to fund the government budget, as are other taxes. Advocates of an unrealized capital gains tax suggest that it could help to redistribute wealth and ensure that the high net worth multimillionaires and billionaires pay their fair share.
Critics, on the other hand, have suggested that taxing unrealized capital gains would bring problems. Specifically, it could:
• Create administrative challenges for an already understaffed IRS
• Force taxpayers to sell their assets to cover the tax owed
• Disrupt capital markets
• Deplete the market value of real estate and other assets
• Discourage investments and innovation that help to drive the economy
During the 2024 election, there were questions raised about exactly whom the unrealized capital gains tax might affect. Claims that it would cost everyday Americans more in taxes made the rounds on social media. Those claims were proven false by a Penn Wharton Business Model analysis.
Recommended: Understanding Taxes on Investment Income
How Capital Gains Are Taxed Currently
Capital gains are subject to a different tax rate than income. Essentially, you’re taxed based on how long you own the asset before you sell. When tracking your money and net worth, keep the following in mind:
• Assets held less than one year are subject to the short-term capital gains tax rate, which is the same as your ordinary income tax rate.
Assets held a year or longer are subject to the long-term capital gains tax rates, which are 0%, 15%, or 20%, based on your income.
• The longer you hold assets, the longer you can defer paying taxes on capital gains under the current tax structure. That’s an incentive to use a buy-and-hold approach when making investments.
On the other hand, you could end up with a capital loss instead if you sell an asset for less than what you paid for it. Capital losses are deductible, up to certain limits. If you’re filing taxes for the first time with investment gains or losses, you may want to talk to a tax professional about how to minimize what you owe.
Recommended: How to Monitor Your Credit
Example of Tax Calculation of Unrealized Gains and Losses Currently
Calculating unrealized gains and losses on assets you own is fairly straightforward. You simply need to know what you paid for the asset and what it’s worth today. Here’s what the formula looks like:
So assume you buy 1,000 shares of stock for $1 each. Today, those shares are worth $5 each. Your unrealized gains would be $4,000.
Now, assume you bought the same shares for $5 each but their value has dropped to $1 per share. Now, you have an unrealized loss of $4,000.
Currently, unrealized capital gains don’t impact taxes in the U.S., and unrealized losses are not reported. In other words, it is not currently a tax filing mistake if you do not pay taxes on unrealized capital gains.
Recommended: What Is Income Tax Withholding and How Does It Work?
Example of Tax Calculation of Unrealized Gains and Losses After Proposed Unrealized Gains Tax
If an unrealized capital gains tax were to take hold, it would be difficult to calculate the amount an affected taxpayer might owe, since each tax situation is different.
Based on the proposal that was credited to Kamala Harris, you could assume that any unrealized gains a taxpayer had for the year would automatically be subject to a 25% minimum income tax. So if they bought 10,000 shares of stock in January for $500,000 and those same shares were worth $5 million in December, the 25% tax would apply to the increase in value (+$4.5 million).
That assumes two things:
• That they do not sell the shares, and
• Their net worth exceeds $100 million
Net worth is not static, and it can change as the value of someone’s assets changes. Someone might have an unrealized gain of significant value, but they might not be subject to the minimum tax as proposed if their net worth doesn’t cross the $100 million threshold prior to tax preparation season. That complication is yet another reason why an unrealized capital gains tax, if adopted, might be difficult to implement.
The Takeaway
During the 2024 presidential campaign, an unrealized capital gains tax proposal generated controversy, as there are advantages and disadvantages to making such a significant change to the tax code. As the topic of unrealized capital gains may make headlines in the future, it’s important to understand how buying and selling stocks or other assets for a gain or loss might affect your tax liability. This information can be a vital component of monitoring your finances.
Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.
FAQ
Unrealized capital gains tax meaning?
An unrealized capital gains tax is a tax on gains from assets that you own but haven’t sold yet. Ordinarily, unrealized capital gains are not taxable; you’d owe tax only if you sell an asset for more than what you paid for it.
Does any country tax unrealized capital gains?
Denmark is one example of a country that taxes unrealized gains. Individuals who live in Denmark and own foreign properties are subject to an exit tax that applies to unrealized gains associated with increases in the property’s value. This tax on investment properties applies when the taxpayer departs from Denmark to live elsewhere. In 2024, the Denmark Tax Council proposed a 42% unrealized capital gains tax on crypto assets, which would take effect in 2026 if passed.
What is unrealized capital gains tax?
Unrealized capital gains tax is a charge for investment gains that’s assessed before an underlying asset is sold. Capital gains tax is typically assessed only when you sell an asset for more than the price you paid for it. Taxing unrealized gains would not rely on selling an asset to trigger taxes owed on it when it increases in value.
Which countries tax unrealized capital gains?
Denmark and Norway are two examples of countries that tax unrealized gains in the form of an exit tax. In Norway, unrealized gains on shares and ownership interests in Norwegian companies are taxed when you move to another country. The unrealized gains tax rate is 37.84%, though there are some exceptions to the rule.
How do you tax unrealized capital gains?
Taxing unrealized capital gains requires an assessment of an asset’s original purchase price or basis and its current fair market value. The unrealized capital gains tax proposal credited to Kamala Harris outlined a minimum 25% income tax on unrealized capital gains for individuals with a net worth exceeding $100 million. Other countries tax unrealized gains when you move to a different country and become a tax-paying resident there.
How does unrealized capital gains tax work?
Unrealized capital gains tax works by taxing the increase in value of assets you own but have yet to sell. Essentially, it’s a tax on paper profits, which can be problematic if you have assets with unstable or uncertain values.
photo credit: iStock/Jacob Wackerhausen
SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.
*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
SORL-Q125-016