The Great Perils of Taxing Unrealized Capital Gains

Democrats are always hungry for ever more taxes. Incomes have already been over taxed. Now taxing wealth is viewed as the next pot of gold. An “unrealized gain” is an asset that has increased in value but has not been sold. Assets from investments & real estate, down to personal property, would be taxed if its value has increased since purchase. Historically only realized gains have been taxed.

Federally “capitol gains” are taxed differently depending on how long they have been held. One year, or less, it is taxed as ordinary income. If the asset has been held over one year it is a “long term capitol gain” and receives a better tax rate of from 0% to 15% to 20,% depending on the taxpayer’s income. In CA, all capitol gains are taxed as ordinary, earned income, at up to 14.4% depending on the taxpayer’s income. Some local municipalities have also imposed an additional tax as high as 10.25%.

Combined, (without local taxes considered,) 34.4% would be due. Consider someone that purchased a house years ago for $50K now it is worth $500K. Regardless of the house not being sold, that owner would owe about $154,800 in the first year, plus taxes on other assets. As few people have large sums of cash on hand, the house or other investments would have to be sold. The simultaneous forced dumping of real estate and other investments would cause a massive drop in values. The tax would be set upon the tax year end. Later declines in value would not be considered until next year. This would result in a huge decline in home ownership and declines in investments

Mark Fernwood