During most election cycles, some of the major campaign issues revolve around changing tax laws. One of the tax reforms frequently discussed is rescinding the capital gains tax. Let’s start by first explaining what capital gains are and how they affect investors. Capital gains come into play after an investor sells a taxable asset. If an asset is held for a year or less, this is considered a short-term capital gain. If an asset is held for more than 365 days, this would be considered a long-term capital gain.

Short-term capital gains receive ordinary income tax treatment while long-term capital gains receive a favorable tax rate. Rescinding the capital gains tax law would mean long-term taxable investments no longer receive preferable tax rates. The table below outlines the long term capital gains tax rate that would apply to an investor based on their ordinary income tax.

According to the current tax laws, if the investor is single and earns between $40,001 – $441,450 annually,  a 15% tax rate would apply to a long term capital gain. However, without the capital gains tax law, this same person would pay between 22-32% in taxes on this same investment. The table below shows an example of the amount of taxes that would be paid on various capital gains.