New federal legislation would align the capital gains tax bracket thresholds with current income tax brackets, resulting in a tax cut for some high earners.
The Middle Class Savings Act "modernizes the federal tax code," according to its sponsor, Rep. Andy Barr, R-Ky.
The bill lifts the top of the 15% long-term capital gains tax bracket to $500,000 for individuals and heads of household, from $425,800 and $452,400, respectively. For married couples and surviving spouses, the top of the 15% bracket would shift to $600,000 from $479,000.
The 20% capital gains rate would apply to income above these thresholds.
The bill also increases the limits for the 0% capital gains rate to $51,800 from $51,700 for individuals and heads of household and to $77,400 from $77,200 for joint filers and surviving spouses.
"Currently, capital gains tax brackets are based on outdated income thresholds that have not kept pace with inflation," Barr said in a statement.
He added that his bill "corrects this disparity" by updating the breakpoints for capital gains to reflect the income levels used in the current income tax brackets.
"The adjustments to the breakpoints for the 0%, 15%, and 20% capital brackets are minor to ensure they mirror the marginal tax bracket limits," Jeff Bush of The Washington Update told ThinkAdvisor. The bill "would simplify the overall complexity of the tax code for filers and allow for the indexing of the brackets."
The Congressional Budget Office has not scored the bill, which does not index the brackets to inflation.
"It seems logical that it would initially result in a small net negative impact on government revenues, which will increase over time," Bush said. "Given the numerous variations in filers' situations, establishing clear guidelines on how it will affect a filer’s tax bill is challenging. However, in this case, it would benefit those income earners near the top of their current marginal brackets."
— Katie Rass contributed to this report.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.