Talk:Capital gains tax in the United States

Short-term capital gains

I know you liberals don't want to expose how much taxation occurs in the USA. (Liberals = 90+% of wikipedia editors.) But, Wikipedia is sort of...you know...an encyclopedia.

So, how about SPECIFICALLY STATING what the tax is on Short-term capital gains? Thanks! —Preceding unsigned comment added by 71.238.68.127 (talk) 22:00, 25 November 2007 (UTC)

The article in fact states the tax rate: "Short-term capital gains are taxed at a higher rate: the ordinary income tax rate."EECavazos (talk) 22:47, 25 November 2007 (UTC)

• • Short Term Cap Gain Rate: Securities held 1yr Or LESS: Taxed @ Ordinary income (Investor Tax Bracket)

You damned liberals and your whole Constitution thing.74.73.108.93 (talk) 00:44, 10 December 2007 (UTC)

Libertarian soundbite?

Under the criticism section there is a pretty gratuitous plug for the Libertarian Party. There's really no reason for it to be there, but as long as it is, I will make sure the socialist position stays there as well.

I don't really know how to make external links as the Libertarian editor did, but if someone feels they should be there, here are some American Socialist parties that could be linked to:

Democratic Socialists of America http://www.dsausa.org/dsa.html

Socialist Party USA http://www.sp-usa.org/

World Socialist Party (USA) http://www.wspus.org/ —Preceding unsigned comment added by 71.108.14.52 (talk) 05:03, 17 April 2008 (UTC)

-I removed the "socialist" soundbite that referred to Marxism. The issue at hand is the capital gains tax, not the existence of capital gains. While the Libertarian comment does resemble a plug, it at least holds some relevance to the topic of capital gains tax. 207.133.248.241 (talk) 15:09, 12 August 2008 (UTC)

Well, shouldn't the line "which is morally equivalent to theft", at least read "which [by their doctrine] is morally equivalent to theft"? —Preceding unsigned comment added by 141.110.81.102 (talk) 14:12, 14 August 2008 (UTC)

As a libertarian who is not a member of the Libertarian Party, I agree that this should not refer to the LP. It's fallacious to imply (as it does now) that ONLY members of the LP believe this. The truer statement is "People who advocate for a smaller role in government (such as libertarians and some conservatives)..." with the appropriate links to Wikipedia pages on those topics. Dylan38 (talk) 07:51, 1 October 2008 (UTC)

I likewise agree with the silliness of having the libertarian reference. The complaint that corporate income is doubly taxed is a common one, not only one from libertarians, as the article suggests. This references to people making the claim needs to be deleted. The fact of the matter is that the income IS taxed twice. Whether this is desirable or not is another topic. I am deleting the libertarian reference.--Jlamro (talk) 22:39, 5 March 2009 (UTC)

LTCG for the 10 and 15% tax brackets

The page indicates that LTCG for those in the 10% and 15% ordinary income brackets would pay 0% in long-term capital gains taxes, but the IRS website indicates that this rate is 5%:

http://www.irs.gov/taxtopics/tc409.html

Can someone explain why this rate would be 0%? Am I missing something here? —Preceding unsigned comment added by 192.147.58.6 (talk) 13:57, 29 August 2008 (UTC)

New material

A new anonymous user added the following to the article:

The $250K / $500K exemption is not increased for home ownership beyond 5 years and has led to some interesting behavior in high price areas. Some people in California drive many hours a day polluting the air and wasting gasoline because it is cheaper to spend the money on gasoline rather than pay tens or hundreds of thousands of dollars of taxes to move. http://www.signonsandiego.com/uniontrib/20060820/news_1h20mailbag.html Others cannot move to jobs in other cities because the capital gains tax. (Robert Bruss, lawyer and writer, Washington Post: http://www.washingtonpost.com/wp-dyn/content/article/2006/06/15/AR2006061502245_pf.html) The real estate section of the Washington Post suggests to move often to avoid capital gains tax in expensive areas. http://www.washingtonpost.com/wp-dyn/content/discussion/2005/08/19/DI2005081901155.html

I removed the material. First, the text as written is tendentious without clearly stating that the verbiage is the opinion of the writer of the source material. Second, and more important, the source material does not say that this is the opinion of the writer of the source material -- the source does not say that California drivers are "polluting" the air and "wasting" gasoline. The "polluting" and "wasting" commentary appears to be the opinion of the anonymous user who inserted the material. This is a classic example of citing a source for a proposition that is not found in the source. The statement about "others" not being able to move to jobs in other cities because of the capital gains tax is not exactly what Robert Bruss was saying, either. And the Washington Post material does not suggest that people "move often to avoid capital gains tax in expensive areas". The first sentence, regarding the exemption not being increased for ownership beyond five years, is correct, but so what? I'm not clear why this should be in the article. (It appears to be the thought of the anonymous user that this would be a good idea to put into the law, perhaps??) Famspear (talk) 13:24, 25 October 2008 (UTC)

In short, the source materials in large measure do not stand for the propositions stated in the text (i.e., lack of verifiability). Famspear (talk) 13:30, 25 October 2008 (UTC)

1. If a person drives far to work, he is polluting; it is not POV. I can change it to "wastes gasoline" instead of "polluting". OK with you?

2. I can change the material from real estate and tax lawyer, Robert Bruss to a direct quote. OK with you?

3. "Move more often to save tens or hundreds of thousands of taxes" to a direct quote from article. OK with you?

These are techniques used in high price areas. This is what is going on in real estate on east and west coast urban and waterfront areas. By the way, I am not NEW to wikipedia, but have been contributing for years. 71.131.18.214 (talk) 16:07, 25 October 2008 (UTC)

Dear user IP71.131.18.214: I agree that if a person drive "far to work," his or her vehicle is emitting pollutants. The point is that this is your conclusion and my conclusion; it is not something discussed or found in the source material. You are violating the Wikipedia rules. Sources must stand for the proposition stated in the article. Same thing with "wastes gasoline."

If you want to quote lawyer Robert Bruss directly, the acceptability of that quote would depend on how it is used in the article. The same Wikipedia rules (Verifiability, Neutral Point of View, and No Original Research) apply to quotes as well as to paraphrases. Edits are "OK" if they conform to Wikipedia rules, etc. I don't care whether the techniques you describe are "techniques used in high price areas" or whether something is or is not "going on in real esate [sic] on east and west coast urban and waterfront areas." Let's focus on following Wikipedia rules. Famspear (talk) 16:58, 25 October 2008 (UTC)

OK. I worked for an hour and fixed it to be the way you want it to be. Is it ok now with you so we can stop reverting each other work? As an aside point, a car driven a long commute is polluting and wasting gasoline and is a well known fact and not an opinion, but I removed it anyway to avoid argument. 71.131.5.108 (talk) 17:41, 25 October 2008 (UTC)

Some of the material appears to be "how to" material that might not be appropriate for Wikipedia. However, I'll try to take a closer look at it later. Yours, Famspear (talk) 18:16, 26 October 2008 (UTC)

Hmmm. I don't see any how to material. Let me know specific thing you refer to. 71.131.0.199 (talk) 19:11, 27 October 2008 (UTC)

Alternative minimum tax can raise capital gains rate, article is incorrect in this situation and misleading

Alternative minimum tax can raise capital gains rate beyond what is stated in article if you have a large sale (selling your home for example). Article is misleading and incorrect in stating the rate is 15% (in case of AMT). 71.131.18.214 (talk) 16:15, 25 October 2008 (UTC)

"No offset for gains due to inflation" correction

"The capital gain upon which the tax is calculated is not inflation adjusted. Thus for example, a gain that is entirely due to inflation (currency debasement), is not a real gain at all, nevertheless this illusory gain is taxed. Inflation has not been anywhere near 15% since the 1970's, and inflation levels are not necessarily positively correlated with capital appreciation."

I removed the bold sentence because it is inaccurate and irrelevant.

Year over year inflation rates do not have to be anywhere near 15% for an illusory capital gain to be taxed.

The thought that 'inflation levels are not necessarily positively correlated with capital appreciation' is laughable. An overall rise in prices is the definition of inflation.

"Fair share" and net tax revenue

I'm preparing an article in another encyclopedia, and I need information on how the capital gains tax rate affects tax revenue. I heard somewhere that "raising" the capital gains tax (i.e., increasing the percent from say 20% to 40%) has been advocated by some on the grounds that the rich should pay their fair share. Others have said that raising the rate paradoxically lowers tax revenues, because investors defer sales to avoid the tax when they think it is too high.

Is there enough historical data to let the reader decide whether this theory makes sense? That is, has the CG tax rate ever been raised so quickly (or so high) that the tax revenue it generated went down? Or has the rate ever been lowered, leading to (paradoxically again) an increase in CG tax revenue? I think Newt Gingrich was advocating something like that.

Also, what do various economists say about the effect of changing the tax rate? --Uncle Ed (talk) 11:49, 16 March 2009 (UTC)

Sources

For starters, how on earth is http://www.huppi.com/kangaroo/L-capgainsspur.htm considered a worthwhile source? The rule in Reliable sources is "an established expert on the topic of the article whose work in the relevant field has previously been published by reliable third-party publications..", which doesn't seem to be fulfilled, here. 68.73.99.92 (talk) 06:03, 27 March 2009 (UTC) Gattsuru

double taxation?

The counterpoint in the double taxation section (i.e., that wage earners pay multiple taxes as well, since their employers pay it before paying them) is both unsourced and wrong. Wages paid to employees is a business expense; thus, this is not a good example of another form of double taxation.

There are other reasons why the tax code exists as it is (for instance, in corporations, higher taxes are the price levied for the privilege to gainfully participate in an enterprise while not assuming any of its legal liability beyond the amount invested), and perhaps they should be mentioned. I'm not going to put them in because I don't have a good enough background to source anything, but I'm throwing this out to anyone who might. —Preceding unsigned comment added by 71.48.212.222 (talk) 04:41, 15 April 2009 (UTC)

Just because someone says it's double taxation doesn't mean we should include in in this section. There is no merit to the double taxation argument. If I invest 100,000 and earn 10% or 10,000, I am taxed once on my profit or GAIN of 10,000. That is obviously not double taxation. I am deleting the portion that suggests capital gains is 2x tax. 99.38.229.22 (talk) 03:41, 19 January 2013 (UTC)

Please Define "qualified five-year 18% capital gains rate"

Please elucidate the following bullet:

After 2010, the qualified five-year 18% capital gains rate (8% for taxpayers in the 15% tax bracket) will be reinstated.

Does this mean that capital gains on assets held longer than 5 years will be taxed at only 18% rather than 20%? Thx. —Preceding unsigned comment added by 67.9.180.133 (talk) 22:37, 12 June 2010 (UTC)

Ditto - I would like this explained. Virillustre (talk) 17:23, 18 July 2012 (UTC)

The "Opinions about tax is correctly labeled POV, and non-encyclopedic

And, it should be removed to an appropriate forum for discussion of opinions, or else complemented with discussion of all tax issues, such as the fairness of Cap. gains rates being so much lower than the ordinary income rates applicable to earned income. —Preceding unsigned comment added by 66.167.95.10 (talk) 21:50, 31 December 2010 (UTC)

And it's nonsense. A loss is a loss, a gain is a gain. If you have more dollars now than you did before, you made a gain and you pay the tax. If you did nothing with your dollars and it's "worth less" because of inflation, do you want to claim it's a loss and get a tax refund on it? Plus, the size of your profit scales with inflation. And the tax is a percentage, not an absolute, so it scales with inflation. The whole thing reeks of either math illiteracy or political sophistry. I agree the entire section should be removed or moved to an article on fallacy. 198.207.0.5 (talk) 20:55, 14 October 2011 (UTC)

A Capital Gain is Not Income

• The only instance where a capital gain can be considered "income" is where a mutual fund which one invests in sells stock held in that mutual fund, adds the gain from that stock sale to the value of the mutual fund, at which point the investor sells his mutual fund. The additional value for which that investor is selling his mutual fund shares are considered a "profit" but still taxed at capital gains rates. So really even in this instance, there is not income, but rather a Capital Gains "Profit". Please anyone elucidate if you have other thoughts, otherwise I am changing that entry to omit the use of the term income in relation to Capital Gains. Here's the passage I changed -- "pay income tax on the net total of all their capital gains just as they do on other sorts of income" 10stone5 (talk) 06:07, 11 August 2012 (UTC)

For federal income tax purposes, which is what we're talking about here, a capital gain is "income". That is, a capital gain is included in "gross income" under Internal Revenue Code section 61. A capital gain is a kind of "income." Famspear (talk) 14:07, 11 August 2012 (UTC)

Oh, and just to be clear, the distinction that you tried to raise regarding the word "profit" is also incorrect. Famspear (talk) 14:09, 11 August 2012 (UTC)

Background: The federal income tax law generally divides "income" into two categories: "ordinary income," and "capital gains." Subject to some exceptions not material here, the general rule is that if you buy stock in, say, ExxonMobil or IBM for $100 and you later sell it for $120, you have a $20 realized capital gain, which is includible in "gross income" under Internal Revenue Code section 61(a)(3), as a "gain" from a "dealing in property." The term "profit" is just another term that you could use to describe the gain. Famspear (talk) 14:20, 11 August 2012 (UTC)

State CGT

Most US states impose their own Capital Gains Tax on top of the federal CGT. Seems that an article about "Capital Gains tax in the United States" ought to at least acknowledge this. Grover cleveland (talk) 03:52, 16 September 2012 (UTC)

Here's the line.

All significant reductions in the long-term capital gain tax rates have preceded a recession by one to four years. http://www.cch.com/wbot2012/029CapitalGains.asp

For some reason, Arzel removed this leaving only an implausible edit comment: "Not a RS, plus "significant" is weasel in this sense. Correlation without causation trivia". I'm StillStanding (24/7) (talk) 04:03, 27 September 2012 (UTC)

Its probably not a RS, but the information in the chart could be found in a RS, so it's not a big deal. However Arzel is correct about this implying correlation without cause. Find an RS that makes this case.  little green rosetta(talk)
central scrutinizer  04:10, 27 September 2012 (UTC)

"Significant" is a statistical term in this sense, however ther is no statistical analysis in the source that would dictate what a "significant" recession is. As it is the editor defined "significant" to fit the outcome. It is quite clear when you look at the source that the author simply looked for all the reductions in capital gains and then counted the number of years until there was a depression and then said there was a "significant" link between the two, however there is no analysis to back up the claim. Also, the biggest recession of all, the great depression, does not follow the pattern as rates had not changed for a number of years (according to the chart) before 1929, and then rose after 1929. If anything the chart shows that the increase in 1933 delayed the recovery from the great depression. I find it depressing that ISS would restore this. Arzel (talk) 19:24, 27 September 2012 (UTC)

"Significant" referred to the reduction in the Capital Gains Tax not a "significant" recession. As for the change in 1933, that occurred during the Great Depression and obviously shouldn't be a factor in this discussion. While I never said there was a link or cause and effect between CGT reductions and recessions, it should be noted in the article as politicians claim that lowering the CGT brings on prosperity. ----Cgersten 22:59, 27 September 2012 (UTC)

Right, the issue here isn't whether we can show that the correlation comes from causation, only that reliable sources note the correlation. I'm StillStanding (24/7) (talk) 05:52, 28 September 2012 (UTC)

My left knee hurts when it rains, so obviously my left knee is correlated with rain..that must mean something? Right? You both do realize that the source being used is just a table, ISS I don't know when you took to supporting original research. Arzel (talk) 13:54, 28 September 2012 (UTC)

Page needs to be updated to reflect new law

This page needs to be updated to reflect the American Taxpayer Relief Act of 2012 ("ATRA" or H.R. 8). I hesitate to edit directly since I haven't actually read the legislation. Ginahoy (talk) 02:13, 5 January 2013 (UTC)

Language

I think much of the language in this article needs refining. There is no need to advertise sources in the text: "According to USA Today (“New rule puts a wrinkle in figuring taxes on stock sales” by Mark Krantz published February 13, 2012 page 6B)" in the History of capital gains section, "the conservative newspaper Human Events" in the Rationale section, "In an article in the Washington Post" in the Primary residence section, "According to an article in the Washington Post" also in the Primary residence section, etc.

The sources should be available in the refereces section and the text uncluttered by details that aren't relevant to the subject (i.e., what matters is what was said, not where it was said). 69.174.87.108 (talk) 18:27, 30 January 2013 (UTC)

Proposals to reform the long-term term length?

I've repeatedly heard that there is some persistent effort to return the holding length for long-term capital gains to five years back from one, in the U.S. However, I can't find any reference to this in anything other than oblique mentions in blogs and other low quality sources. Does anyone have a good source? Neo Poz (talk) 03:31, 22 February 2013 (UTC)

Problem with the graphs

1. First graph has a start date of 1972 to push a certain agenda to imply the tax rate has always been declining. Ignores lower rate from 1954 to 1967. Also, is not updated to include 2013 tax rate

2. Much criticized crs study which lacks basic econometric and theoretical frameworkSabote88 (talk) 10:05, 25 February 2013 (UTC)

You don't like the one which starts at '72 because it only shows decreases, but you also don't like the one that starts in 1950 because it has growth rates on it? Whatever your problem is with the study it came from, its data is correct. Neo Poz (talk) 12:39, 25 February 2013 (UTC)

1031 exchange

I removed one sentence from the section Primary residence, as its footnote had been reported as a dead link. It described deferring capital gains tax using 1031 and laid out a strategy that did not seem much different from the strategy described in the preceding sentence.

Now about the surviving portion of the paragraph. A claim is made that use of 1031 "can avoid capital gains tax entirely," presumably by converting properties from primary residence to rentals and vice versa, but it doesn't say how. My only guess is that, by moving into a former rental property, you will not have to pay cap-gains simply because you plan never to move out. However it does it, it doesn't belong in this section, as Wikipedia says 1031 exchange doesn't apply to personal residences (nor to second homes). And this section claims to be about 26 U.S.C. §121, which the paragraph says is not available to properties acquired in a 1031. Spike-from-NH (talk) 22:30, 8 October 2015 (UTC)

1031 exchange says personal residence can be used in 1031 exchange if rented out for 2 years just prior to exchange to delay capital gains tax. DrElgin (talk) —Preceding undated comment added 17:08, 22 July 2017 (UTC)

I think the text we have now is accurate; and it begins with a link to the 1031 exchange article, though I will edit it to avoid the double redirect. Spike-from-NH (talk) 02:39, 23 July 2017 (UTC)

Assessment comment

The comment(s) below were originally left at Talk:Capital gains tax in the United States/Comments, and are posted here for posterity. Following several discussions in past years, these subpages are now deprecated. The comments may be irrelevant or outdated; if so, please feel free to remove this section.

==Class== Start class because it lacks a history section but does well content-wise.EECavazos 04:48, 23 October 2007 (UTC) Disagree about content. Having 2009 table (obsolete) near the top of the article implies the rates in it are current, when in fact they are not. This is the first thing the user sees and most will assume it is the current and correct info. In actuality, the user must scroll down to near bottom of article to see current rates. Ugh. Consider complete rework of content to put simple table of current rates near the top (alternatively, just get rid of 2009 table and replace with current rate table). ==Priority== Mid priority because this article is limited to the US but it is quite important. Actually, I will move it to high priority because capital gains treatment of investments in the US is of importance to other countries because so many invest in the US.EECavazos 04:48, 23 October 2007 (UTC)

Last edited at 01:30, 29 June 2014 (UTC). Substituted at 10:51, 29 April 2016 (UTC)

I did some work this year to make sure that historical information was under History rather than in the Intro. However, the article would be still better if the reader saw what current law is without having to scroll through a discussion of how it got that way, which I'll do now. (No objection to deprecating the subpages.) Spike-from-NH (talk) 12:34, 29 April 2016 (UTC)

Rationale

The section Rationale has multiple problems.

• The sentence "The 2007 capital gains tax revenue of $123 billion was equal to 75% of the Fiscal Year 2007 budget deficit." is a relationship without meaning and I have deleted the sentence. This figure might also be 75% of the amount Americans spend on cigarettes or movies. A deficit of $170 billion seemed huge under Bush, but we have seen deficits much higher since 2007. If the implication is that higher tax rates could reduce or close the deficit, we don't know that. No Member of Congress has been voted out because of high deficits, so raising more revenue and promising to "apply it to the deficit" assumes all other things are kept equal, when in fact there is a large wish list waiting for that funding, which might be a larger political positive than the deficit is a negative.
• The lede is, "the lower tax rate of long-term capital gains meant $38 billion more in the hands of the consumer." We don't know that either. Taking long-term capital gains tax receipts and factoring in the rate for ordinary income produces a figure of "foregone revenue" but that assumes revenue is linear and no one would respond to the higher rates by deferring asset sales or other avoidance. Surely if Congress changed the 15% rate to 150%, the government would not get ten times as much revenue. The source is an article from a liberal website whose title references "Tax Expenditures" (that is, that any lowering of anyone's tax rates is tantamount to leaving money on the poker table).
  • As for "the hands of the consumer" (which Anon today changed to "the hands of wealthy Wall Street executives" and EricEnfermero helpfully reverted), this is biased (as many of us would rather help the consumer rather than the government) but Eric's revert rationale is correct, that a subsequent sentence clarifies that the incidence of the tax falls on payers with higher incomes (though they are consumers too). I'll write "the taxpayer" rather than "the consumer" and let the clarifying sentence clarify.
    • (Seeing no feedback, I have now deleted the sentence and will work on a more balanced introduction. 14:36, 3 May 2016 (UTC))
• The rest of the section is classic Wikipedia leftism: A case made by a conservative, followed by a longer rebuttal by a liberal (combined with a bit of disparagement of his adversaries), the section begun with an illustration making the liberal's case, which has a caption explaining how to read the illustration and see what the truth is. (I have moved the illustration alongside the argument rather than leading the section with it.) The result is the leftist's usual point that high tax rates work just as well as low tax rates; they raise more money for government and nothing bad happens. Hungerford suggests "even a negative correlation between...tax reduction and...saving and investment." There is no explanation why investors would be more eager to invest if they knew their after-tax return would be lower, except that Hungerford did a study. If higher taxes really are the key to prosperity, this should be spelled out; otherwise, the current decade is living disproof.
• The section briefly mentions Congress's desire to encourage saving and investment with lower rates (before offering longer rhetoric that it doesn't work anyway). The real conservative rationales for American capital gains tax policy are never stated in the article:

1. Holding an investment for many years means some of the gain merely reflects inflation, and a lower rate is simpler arithmetic than normalizing the cost to determine how much real gain there was.
2. The US competes with other nations for capital and is not free to raise gains tax rates to punitive levels without unwanted side-effects.
3. An asset increases in value because wealth was created somewhere: A stock I own goes up in value because a corporation created wealth. The corporation was already taxed on the creation of that wealth. To tax that wealth a second time does not remedy untaxed wealth creation; it simply makes the investor share the discomfort. The thought that investors can live free of tax is anonymous editor's motivation, but they can't: Their corporations paid taxes, and made it up in lower stock price or lower wages and salaries or higher consumer prices, and no one knows how much of each. Spike-from-NH (talk) 22:06, 30 April 2016 (UTC)

• Have now found a citation where Steve Moore argues points 1 and 3, minus my rhetoric above; have not yet found a source who explains point 2. Also added policy arguments from the Sanders and Clinton websites to balance. Spike-from-NH (talk) 13:59, 4 May 2016 (UTC)

PS--A separate problem with the Berman study (top cap-gains tax rate versus GDP) is that it merely disproves that the rate of this one tax is the dominant factor, something that no one claimed. High taxes on salaries could inhibit GDP growth more than high taxes on cap-gains. The Hungerford study comparing top cap-gains tax rate versus national rate of saving has the same problem: Investing in capital assets is not the only way to save.

There are simply too many things going on in the nation to correlate one number in the tax code to the total result. Notably:

• When lowering one tax rate, Congress may have agreed to raise another tax rate "to pay for the cut." Especially since the 2013 law, we are in a regime of "high capital gains taxes," but there is also a broad bracket where gains are taxed at 0%.
• When lowering one tax rate to spur the economy after a mishap, the outcome may reflect the mishap as well as any incentive effects of the tax cut.
• Phasing in a low-rate regime may induce taxpayers to defer economic activity to the end of the phase-in, as Reagan's signature tax reductions (staggered by Congress) probably caused the first recession during his Presidency.

We know that raising cap-gains rates does not increase government revenue by the same proportion; for one thing, the incidence on high-income taxpayers mentioned in the section also makes it easy for them to avoid the tax by simply not selling the assets. There is some point of diminishing returns to raising any tax rate. I believe the US has been beyond that point for decades, but failing proof of that, the article's advocacy that raising tax rates is no big deal is simplistic and is not proven by the studies. Spike-from-NH (talk) 18:18, 1 May 2016 (UTC)

PPS--For the same reason, Mark LaRochelle, the conservative cited in the section, never proved in his essay that Bush's capital gains tax cut was the key to improved economic results. Bush (in a series of enactments, each valid for only two years to avoid a Senate filibuster) cut and held down tax rates on income from all sources, famously described as benefitting all tax brackets. LaRochelle's short essay gives a correlation of the Bush years (and in fact, two other examples, by Clinton and Reagan) that does not prove causation. In each case, the change included measures other than cap-gains cuts designed to boost the economy. Congress simply does not pass laws benefitting stock traders except as part of a prosperity package that also covers non-traders. Spike-from-NH (talk) 22:53, 2 May 2016 (UTC)

Hedge funds

Nirajsm edited the section Carried interest, adding a citation on Warren Buffett and stating in the Edit Summary, "hedge funds don't make carried interest." (Regardless, the tax treatment is still referred to as the "hedge fund loophole.") I don't know whether they do or not, but the Marois/Alesci (Bloomberg) citation says they do. I welcome proof or comments by more knowledgeable editors but have restored the assertion in the meantime. If we agree that hedge funds do not get the carried interest treatment, then the previous paragraph needs to be corrected.

I also restored text that Nirajsm deleted that explains the rationale for the criticism, made the result more grammatical, deleted elaboration on the Buffett criticism because it was a restatement, and pulled more quotations out of the Bloomberg reference. Spike-from-NH (talk) 15:17, 29 August 2016 (UTC)

PS--Also, Taxation of private equity and hedge funds contradicts Nirajsm, and my brief research finds that any time it is true that hedge funds don't qualify for the "hedge fund loophole," it is because they are incorporated offshore to avoid US taxes entirely. Spike-from-NH (talk) 02:19, 30 August 2016 (UTC)

"One Step Ahead: Private Equity and Hedge Funds After the Global Financial Crisis" (Timothy Spangler) on page 93 clarifies that ordinarily, the performance components of Hedge Funds is called a "performance fee" and for private equity funds the same component is described by the term "carried interest". On the same page it is clarified that only carried interest earned by private equity funds is subjected to capital gains tax treatment. The Marois/Alesci (Bloomberg) citation is not incorrect and in some exceptional circumstances hedge funds can earn "carried interest" if the nature of their investments is similar to private equity investments i.e. they are long term investments. But as the Spangler text explains in detail that this is not ordinarily the case. Even if this is the case then in that circumstance a fund will be straddling the boundaries of a "hedge fund" and a "private equity fund" and is some form of a composite. In light of this, the related article "Taxation of private equity and hedge funds" also needs the same correction. Nirajsm (talk) 14:40, 31 August 2016 (UTC)

I have made a change in the previous paragraph, but added a citation that the tax "loophole" is associated with hedge funds, even if, in practice, they tend not to have gains to which the special tax treatment applies. Spike-from-NH (talk) 15:07, 31 August 2016 (UTC)

PS to Nirajsm--Have now also included your complaint about the term, and your citation, in the text. Spike-from-NH (talk) 13:43, 16 December 2016 (UTC)

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Unbalanced

PJtP attached {{Unbalanced}} to this article. During my recent edit, I took pains to obtain citations from across the political spectrum. The article now includes a citation in favor of the unanimously opposed "hedge-fund loophole." The former section dismissing claims that tax reductions had effect is now more balanced and includes a section on difficulties in measuring and correlating the effects. I have asked PJtP on his talk page what he considers unbalanced and have not gotten a response. Am undoing this edit. Spike-from-NH (talk) 13:46, 17 January 2017 (UTC)

External links modified

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The Kiplinger article on what was new, nine years ago, I deleted; there is still another, better citation in the same place. Spike-from-NH (talk) 15:40, 30 July 2017 (UTC)

1.2 Lower rate for short-term gains

On August 2, @BirdValiant: added a section (1.2 Lower rate for short-term gains) that taxpayers who are not required to file Schedule D do not break out short-term gains on the worksheet, and thus pay only the long-term tax rate. BirdValiant cited instructions from an IRS publication. Anon today deletes this section; he has no citation but makes the valid point that the payor does not know whether the payee has to file Schedule D, and the payee might have a major headache if he, even relying on IRS guidance, came up with different numbers from those the payors report to the IRS. I don't know who is right, but have reverted Anon for now. Please discuss. Spike-from-NH (talk) 01:28, 27 November 2017 (UTC)

The cited sources do not support the contention that short term gains can be taxed at long term rates. The 1040 instructions state that Schedule D is not required if, among other conditions, the only capital gains are capital gains distributions. According to this source, short term capital gains distributions are reported by the payor as ordinary dividends, ie. taxed as regular income not at long term capital gains rates. 71.121.242.20 (talk) 01:54, 27 November 2017 (UTC)

I see now what's going on. When a mutual fund realizes capital gains, short-term capital gains are reported to the fund shareholder as ordinary dividends, while their long-term capital gains are reported in box 2a of Form 1099-DIV in the form of "capital gains distributions." As shown in this source, the individual who receives this distribution gets taxed at the long-term capital gains rate, no matter how long the shareholder has held the shares. So, a shareholder that has held these shares for only a short period of time gets to pay the long-term rate because, originally, the mutual fund held the securities long enough to qualify. Since these capital gains distributions are composed of originally long-term capital gains, the flow from line 13 of Form 1040 to line 3 of the instructions is meant to ensure that this capital gains distribution is always taxed at the long-term capital gains rate. Since this capital gains distribution is thus taxed at the long-term rate, the exception from the IRS publication saves the individual taxpayer the hassle of figuring out any short-term capital gains since, in this exceptional case, all the capital gains get to be taxed at the long-term rate, regardless of how long the individual held the fund shares (the exception being, briefly, "You do not have to file Form 8949 or Schedule D (Form 1040) if you have no capital losses and your only capital gains are capital gain distributions from Form(s) 1099-DIV, box 2a. ... If you qualify for this exception, report your capital gain distributions directly on line 13 of Form 1040 (and check the box on line 13).").

I think that, due to the confusing nature of the taxation of capital gains distributions from mutual funds, the reader deserves a brief footnote clarifying this issue. Perhaps something like:

"Capital Gains Distributions: When a mutual fund, closed-end fund, or exchange-traded fund (ETF) realizes capital gains on its securities, it issues a capital gains distribution. A fund's short-term capital gains are included in its ordinary dividend distribution. When a fund issues a capital gains distribution realized from its long-term capital gains, it is reported to the individual shareholder in box 2a of Form 1099-DIV and is taxed at the long-term capital gains rate, no matter how long the shareholder has held the shares."

...with the appropriate sources, of course. BirdValiant (talk) 03:52, 27 November 2017 (UTC)

I think you mean “When a fund issues a capital gains distribution realized from its short-term long-term capital gains, it is reported to the individual shareholder in box 2a of Form 1099-DIV . . .” 71.121.242.20 (talk) 04:10, 27 November 2017 (UTC)

Nice catch; I have corrected it. BirdValiant (talk) 23:38, 27 November 2017 (UTC)

If we are agreed on the facts, I think that BirdValiant's clarifying footnote belongs in an IRS document, not in this article. The article does not flesh out exactly how every type of capital gain feeds into the reporting forms, and the footnote breaks no new ground on the essence of long- versus short-term gains. A fund holder might get both, and each is subject to the tax treatment the article already describes. Spike-from-NH (talk) 11:59, 1 December 2017 (UTC)

Discrepancy between source and article in the history section

Hi! As a preface, I haven't contributed to Wikipedia before, so I hope you can excuse any procedural faux pas I might make. I'm trying to follow the guidelines as best I can.

The first sentence of the history section states: "From 1913 to 1921, capital gains were taxed at ordinary rates, initially up to a maximum rate of 77%." I came to the article looking specifically for information like this, and the number seemed unusually high so I checked out the source material. The article cited states: "From 1913 to 1921, capital gains were taxed at ordinary rates, initially up to a top rate of 7 percent." So I'm thinking the 77% might be a typo. On the other hand, if it was really 7% I don't understand the purpose of a 12,5% alternative rate that was later introduced. Perhaps it's a good idea to find another source. In any case, the 77% figure seems incorrect, but I'm not confident in my Wikipedia-skills to just go ahead and make an alteration without consulting. Any help is appreciated. 2001:980:7E8D:1:7D01:9274:F752:32F5 (talk) 22:39, 30 April 2019 (UTC)

Hello and welcome! Making contact on the talk page prior to making an edit is procedurally a good move. The 77% is not a typo; in fact, it is apparently vandalism. It was the most recent edit to the article (when viewing the article, click on History at the top of the page to see all the edits) and used to read 7%. I did not immediately undo this edit, as I didn't know the facts, and 77% was a credible number from our (WW2) history, but I'll undo the edit right now. Thank you! Spike-from-NH (talk) 23:18, 30 April 2019 (UTC)

Motley Fool

Brand new Wikipedian @TheBigRedTank: makes large modifications to this article. The essence is that the Tax Cuts and Jobs Act of 2017 tied capital gains rates to the brackets for ordinary income. The Edit Summary is: Fixed issues with whomever was using the Motley Fool. Most of what was written was misinformation and was wrong. Updated tables to reflect changes. The sources are directly from the Tax Cuts and Jobs Act 2017 article.

I may have cited Motley Fool; I did read the actual Act; income levels resulting in the various tax brackets are hard-coded into the Act, and moreover, some are not exactly the income levels governing the rates on regular income. Moreover, the Wikipedia article on the Act does not address capital gains tax at all.

I would like it if the Act had reduced capital-gains rates so elegantly, but my belief is that it did not. Also, the edit does other baffling things, like deliberately put awkward vertical space at the top of the article; change the clear word "lower" to the jargon "preferential"; and remove the material in the table setting out the actual income levels that trigger the various rates. Finally, the new table in Section 2.1 did not use the three-asterisk legend to repeat the note that some capital gains may also be subject to the new 3.8% surtax (that the article, elsewhere, now correctly names the net investment income tax. Spike-from-NH (talk) 12:23, 9 November 2019 (UTC)

Unnecessarily political

What is the point of injecting politics into an article about a subject that is not political in nature?

Example - under the section "Current Law", subsection "Who Pays It?": Debate on tax rates is often partisan; the Republican Party tends to favor lower rates, whereas the Democratic Party tends to favor higher rates.[20]

This passage, even with its citation, adds nothing useful to what is otherwise a boring article about accounting! Eegorr (talk) 13:41, 26 January 2020 (UTC)

The passage tries to show how the law got the way it is. It was not enacted by boring accountants but by politicians, who differ sharply, generally along party lines, about the purpose and the details of the tax. The passage used to go into more detail about why the parties take their respective positions, but that was cut back. The history of the tax, set out toward the end of the article, sheds more light on the forces that shape the tax.

You ask me on my talk page, "why did you find it necessary to insult me in your edit description?" I find no "insult" in the history except where I noted that your edit of last 1 September was explained with a "lengthy polemic," and I still find that to be the case. Spike-from-NH (talk) 16:39, 7 February 2020 (UTC)

State capital gains taxes

This new section is problematic. I think the prior text suffices; see the second bullet in the list under Additional taxes.

The Yahoo! article states that the reason nine states don't tax capital gains is that they don't have a state income tax. This is not the reason, as two of the states in the list do or did have a state income tax, but only on dividends and interest. Tennessee has phased out its Hall income tax; while New Hampshire is set to do so starting in 2023. I've applied this clarification to the article (partly in the footnote), but the result is way too much text not having to do with "Capital gains tax in the United States".

Separately, a New Hampshire state capital gains tax was a campaign issue in 2020 (though it bombed at the polls for the party that proposed it). Such a tax would further refute the Yahoo! article, though of course any state that did tax capital gains would then have a state income tax; a state could conceivably tax capital gains and no other income. Spike-from-NH (talk) 00:07, 16 January 2022 (UTC)

Yeah I thought so, thanks.--Wikideas1 (talk) 05:03, 16 January 2022 (UTC)

Timing of revision of tax brackets

Editor Wikideas1 helpfully revised the article's tax brackets to reflect the 2022 tax year. I told him on his talk page that Americans, until the filing date in mid-April, are focused on preparing our taxes for 2021, and until that filing date, it will be most helpful to readers to state the brackets for 2021. This is not the current tax year, but it is the current tax filing season. I hope this edit will be reverted, then re-applied in April. Spike-from-NH (talk) 04:41, 16 January 2022 (UTC)

Tax on 41.673 Dollar and 41.677 Dollar

The Capital gain tax on 41.673 Dollar is 0 Dollar

How much is the Capital gain tax on 41.677 Dollar?

All the Online Tax Calculators (Forbes.com, smartasset, nerdwallet) say its still nothing. Or is it suddenly 15% on the whole amount?

--Gofrege1 (talk) 14:30, 7 April 2022 (UTC)

The article shows $41,675 as the zero-bracket amount for single taxpayers in 2022. Long-term capital gains up to that amount are not taxed (but see the notes under that table). If you had long-term gains of $41,677, then $2 (not the whole thing!) would be taxed at 15%. That is 30 cents; most taxpayers use the whole-dollar method and would round this down to zero. If you continue your experiment and type $41,775 into the tax calculator, you'll see how it works. Spike-from-NH (talk) 22:00, 7 April 2022 (UTC)