Biden’s Capital Gains Tax Proposal and the QSBS Tax Exclusion

Biden QSBS

President Biden’s capital gains tax proposal would result in hefty tax consequences for America’s wealthy, including members of Biden’s own cabinet. Biden has argued that raising capital gains rates for households making over $1 million would generate enough funding for proposed antipoverty and education programs, stoking the familiar political debate over the connection between taxes and economic growth. 

Members of Biden’s cabinet are subject to government ethics policies, which require officials to take assets that could create conflicts of interest and turn them into mutual funds, treasuries, or other diversified or low-risk assets. In exchange, these officials are permitted to defer capital gains taxes. Current law allows people who sell assets to take government jobs to avoid tax consequences until death, but the proposed alterations to tax law could change this as well.

In keeping with government ethics rules, cabinet officials have divested millions of dollars in assets so far. If President Biden’s plan is passed into law, these assets would be subject to capital gains taxes of up to 43.4%, a sharp increase from the 23.8% taxation under current law.

Heavily impacted cabinet officials include Secretary of State Antony Blinken, Defense Secretary Lloyd Austin, and Energy Secretary Jennifer Granholm. Granholm, in particular, has been under scrutiny since President Biden toured the facilities for Proterra, an electric vehicle (EV) manufacturer where Granholm has held investments. Wyoming Senator John Barrasso requested that the Department of Energy’s inspector general conduct a review of a potential conflict of interest. After divestments, Granholm could suffer a substantial financial hit given recent growth in the EV sector.

How might this capital gains tax proposal impact stockholders? Under current law, someone who inherits appreciated assets, including stocks, does not have to pay capital gains taxes on the appreciation. Instead, the beneficiaries pay the tax when they sell that asset. 

Is the same true for qualified small business stock (QSBS)? Notably, IRS code indicates that QSBS can be gifted during the original owner’s lifetime or at death and still be considered QSBS. The way the stock was acquired and the stock’s holding period are essentially transferred from the giver to their beneficiary. This means that inherited QSBS should still benefit from the capital gains tax exemption that allows 100% of capital gains to be excluded if the stock meets IRS requirements

QSBS Expert provides resources to help you navigate current tax law and an assessment tool to guide you in determining if your stock qualifies for tax exemptions.

This article does not constitute legal or tax advice. Please consult with your legal or tax advisor with respect to your particular circumstance.

About QSBS Expert

QSBS Expert was founded by a group of entrepreneurs, investors, accountants and lawyers who came together when trying to navigate a QSBS situation of their own. We quickly realized that the regulations left a lot of open questions and the publicly available information was confusing to sift through…so we thought that others may also benefit from having a “go to” resource for all things QSBS.