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Fix the driver behind crashes, sound loss and screen glitchesFind Drivers →Repair Windows errors before they cause bigger problemsFix Now →President Biden’s FY2025 budget proposed taxing long-term capital gains and qualified dividends at ordinary income rates for taxpayers whose taxable income exceeds $1 million ($500,000 for married taxpayers filing separately). Treasury described a combined top marginal rate of 44.6%, but that figure applied only to the affected slice of income and depended on several separate proposals. The plan was a budget proposal, not an automatic change to tax law.
What Biden’s proposal would have changed
The U.S. Treasury Department’s FY2025 Greenbook, released March 11, 2024, contained several related provisions:
- Long-term capital gains and qualified dividends for taxpayers with taxable income above $1 million would generally be taxed at ordinary rates on the amount above that threshold.
- The threshold would be $500,000 for married taxpayers filing separately.
- A separate provision would raise the top ordinary income-tax rate to 39.6%.
- Another provision would increase the net investment income tax by 1.2 percentage points for taxpayers with income above $400,000.
Under the then-current ordinary-rate schedule, the capital-gains provision was generally described as reaching 37% before the proposed ordinary-rate increase. Treasury’s footnote summarized the combined result: “Together, the proposals would increase the top marginal rate on long-term capital gains and qualified dividends to 44.6 percent.”
Is 44.6% a flat capital-gains tax?
No. The 44.6% number is a combined top marginal rate, not a rate imposed on every dollar of every investor’s gain.
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- It would concern taxpayers above the applicable taxable-income threshold.
- Only the portion above the threshold would be subject to the ordinary-rate treatment.
- The figure combines the proposed top ordinary rate with the proposed net-investment-income-tax change.
- It would apply to long-term gains and qualified dividends, not automatically to short-term gains, which are already taxed as ordinary income.
Because the threshold is based on taxable income, not on a taxpayer’s capital gains alone, determining which dollars fall above it would require applying the tax-return ordering rules and the taxpayer’s other income and deductions.
Who would have been affected?
The direct target was a high-income taxpayer whose taxable income exceeded $1 million, or $500,000 for married filing separately. A taxpayer below the threshold would not suddenly owe 44.6% on all long-term gains. For someone above it, the proposal would raise the marginal rate on the excess amount covered by the rule.
Qualified dividends were included alongside long-term capital gains. Thus, the proposal was not limited to sales of stock, real estate, or other appreciated property; qualifying dividend income could also face the proposed ordinary-rate treatment when the taxpayer was over the threshold.
How the proposal compared with 2025 current law
IRS Topic 409’s guidance for tax years beginning in 2025 provides the current-law baseline. It says most net capital gain is taxed at no more than 15% for most individuals, while a 20% rate applies above the applicable 15% threshold. Those preferential rates are distinct from the ordinary-rate treatment proposed in the FY2025 Greenbook.
| Issue | 2025 current-law guidance | FY2025 Biden proposal |
|---|---|---|
| Top rate discussed | Most individuals: generally no more than 15%; 20% above the applicable 15% threshold, according to IRS Topic 409 | Long-term gains and qualified dividends above the high-income threshold would use ordinary rates; Treasury’s combined top marginal figure was 44.6% |
| Income threshold | Capital-gains rate thresholds under the tax law, including the applicable 15% and 20% breakpoints | $1 million of taxable income; $500,000 for married filing separately |
| When gains are taxed | Generally when a gain is realized during life, such as through a sale or exchange | Would add realization at certain gifts and deaths involving appreciated property |
| Qualified dividends | Generally receive the preferential rates that apply to qualified dividends | Would be taxed at ordinary rates above the high-income threshold |
| Status and timing | Existing law described by IRS guidance for 2025 tax years | Budget legislation proposal; the Greenbook said proposed changes would apply to gains and dividends after enactment |
Would unrealized gains be taxed when someone dies?
The proposal would generally treat transfers of appreciated property by gift or at death as realization events. The gain would generally be the property’s fair market value on the transfer date minus the owner’s basis.
That is different from an annual tax on every unrealized increase in an investment account. The trigger described in the Greenbook is the transfer itself: a gift during life or a transfer at death. The document also discussed special rules for partial interests, trusts, and closely held business assets, so the result would not be identical for every type of property or ownership structure.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Did the proposal become law?
No. The FY2025 Greenbook was Treasury’s explanation of revenue proposals included in President Biden’s budget. A Greenbook sets out a legislative plan; it does not enact the plan. Congress would have had to pass legislation and the President would have had to sign it for these provisions to become law.
The document’s proposed effective date was for gains and dividends after enactment. Therefore, the 44.6% figure should be described as a proposed combined marginal rate, not as a rate that automatically applied under the tax law merely because it appeared in the budget.
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What the number means for taxpayers
- It was aimed at taxpayers with taxable income above the stated threshold, not ordinary investors generally.
- It covered long-term gains and qualified dividends in the high-income band.
- It combined multiple proposed changes, so quoting 44.6% without explaining its components is misleading.
- Its gift-and-death provision would have required taxpayers, executors, and advisers to determine fair market value and basis, with additional rules for trusts and closely held assets.
- The proposal itself did not replace the preferential capital-gains rates described in IRS Topic 409 for current-law 2025 tax years.
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