Capital Gains Tax Brackets Shift Higher Under Proposed Act, Effective After 2024

This bill, titled the "Middle Class Savings Act," proposes changes to how investment profits are taxed. Specifically, it adjusts the income thresholds that determine the tax rates for long-term capital gains – that's the profit you make from selling assets like stocks, bonds, or real estate that you've held for more than a year. These changes would kick in for tax years starting after December 31, 2024.

The Nitty-Gritty: What's Changing?

The core of the act lies in Section 2, which amends the Internal Revenue Code to raise the income levels for different capital gains tax brackets. Think of it like making the buckets for the lower tax rates (currently 0% and 15%) bigger. For example, under current law (referenced in the bill text but using illustrative 2023 numbers as a baseline, the actual bill references specific codified amounts), the 0% rate might apply up to around $89,250 for joint filers; this bill would increase the corresponding threshold significantly (the bill text cites specific increases like $77,200 to $103,350 for one category, likely single filers). Similarly, the income ceiling for the 15% bracket is also pushed higher (e.g., from roughly $553,850 to over $591,600 or $626,350 depending on filing status, based on the bill's figures). Essentially, you could have a higher total income before your investment profits are taxed at the next higher rate.

Who Catches a Break?

So, who actually benefits? Anyone realizing long-term capital gains could potentially see a tax reduction if their total income falls within these newly expanded lower brackets. If your income keeps your gains in the 0% bracket instead of the 15%, or the 15% instead of the 20%, you'll owe less tax on those profits. While expanding the 0% bracket could help moderate-income individuals who sell some investments, the most significant dollar savings often go to those with higher incomes realizing larger capital gains, as the thresholds for the 15% bracket are pushed substantially higher (into the $600k range for some filers). This raises the question of how well the "Middle Class Savings Act" name aligns with the primary beneficiaries, given the income levels involved in the upper bracket adjustments.

Timing and Takeaways

Remember, these proposed changes wouldn't affect your taxes until you file for the 2025 tax year (meaning returns filed in 2026). The bill directly modifies Section 1(j)(5)(B) of the tax code, which sets these capital gains breakpoints. The bottom line is this legislation aims to reduce the tax burden on investment profits for certain individuals by adjusting the income goalposts for the existing capital gains tax rates.