Biden’s 40% tax rate on home sales only applies to $1 million annual earners
Social media posts circulating ahead of the November 3 presidential election claim that Democratic nominee Joe Biden’s tax proposal will take a 40 percent cut of profits from Americans who sell their home. This is misleading; according to Biden’s plan, think tanks and tax experts, the rate would only affect those earning more than $1 million a year.
“Biden’s Capital Gains Tax means that when you sell your home you’ll owe taxes of 40% of your profit! Let that sink in,” reads an October 16, 2020 Facebook post.
Similar posts have been circulating on Facebook here and here and on Instagram here.
Capital gains tax is collected when an individual or a couple sells an asset, such as a house, for more money than they bought it.
Biden’s tax proposal, available on his campaign website, says that if elected president, he would restore the 39.6 percent top individual income rate and get rid of “capital gains tax loopholes for the super wealthy.”
“Biden will assure those making over $1 million will pay the top rate on capital gains, doubling the capital gains tax rate on the super wealthy,” the platform says.
Kent Smetters, business economics and public policy professor at the University of Pennsylvania’s Wharton School, told AFP that the claim circulating on social media is “incorrect.”
The Penn Wharton Budget Model (PWBM), an economic analysis project led by Smetters, released a report on October 20 which explains how capital gains taxes work and how they would be affected by the policies of Biden and President Donald Trump.
Under current legislation, US homeowners are exempt from capital gains tax if they make less than $250,000 ($500,000 for married couples) profit on the sale of their home. Certain rules apply to qualify for this exemption, such as having owned and used the house as your primary residence for at least two years.
Under Biden’s plan, sellers would only pay the 39.6 percent tax rate on profit made from the sale of their home if they make more than $1 million in taxable income annually, according to the report.
PWBM director of policy analysis Richard Prisinzano said: “Anyone making less than that amount (or who has owned the house for less than a year before the sale) would not see any difference in their tax liability from selling a house.”
Capital gains are mostly earned by the upper end of the income spectrum.
The current capital gains tax rate for the highest income bracket -- $441,450 for single filers and $496,600 for couples -- is 20 percent, half of what Biden proposes, the PWBM report says.
The Trump administration is seeking to decrease that rate to 15 percent. PWBM’s analysis on Trump’s tax proposals is available here.
Public policy think tank American Enterprise Institute (AEI) also said in its analysis that Biden would tax capital gains “as ordinary income for taxpayers who report $1 million or more.”
Overall, AEI found that “in 2021, Biden’s proposals would increase taxes, on average, for the top 5 percent of households and reduce taxes on households in the bottom 95 percent,” and estimated that Biden’s proposals would result in a small reduction in GDP in the long run.
AFP has debunked other claims about Biden’s tax plan here.
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