The Real Impact of the New Capital Gains Tax

Reading Time: 4 minutes

With the upcoming changes to the Capital Gains Tax - I'm sure your clients are asking questions.

The biggest change is that the "inclusion rate" on capital gains for individuals is increasing from 50% to 66.6% for gains above $250,000.

But for a lot of people, that sentence means nothing.

So rather than getting deep into the words and legislation, let's do the math on four (4) different examples and see the real impact on your client's wallets.

Because, really, that's all they care about...

Example 1: Capital Gain of $250,000

Purchase Price: $500,000
Sale Price: $750,000.

Capital Gain ($750,000 - $500,000): $250,000

Taxable Amount (before June 25): $125,000
Taxable Amount (after June 25): $125,000

Tax Paid (before June 25): $66,912.50
Tax Paid (after June 25): $66,912.50

The Result: An individual with a capital gain of $250,000 will pay $0.00 more in taxes.

Example 2: Capital Gain of $500,000

Purchase Price: $500,000
Sale Price: $1,000,000

Capital Gain ($1,000,000 - $500,000): $500,000

Taxable Amount (before June 25): $250,000
Taxable Amount (after June 25): $291,500

Tax Paid (before June 25): $133,825
Tax Paid (after June 25): $156,040

The Result: An individual with a capital gain of $500,000 will pay up to $22,215 more in taxes.

Example 3: Capital Gain of $750,000

Purchase Price: $500,000
Sale Price: $1,250,000

Capital Gain ($1,250,000 - $500,000): $750,000

Taxable Amount (before June 25): $375,000
Taxable Amount (after June 25): $458,000

Tax Paid (before June 25): $200,738
Tax Paid (after June 25): $245,167

The Result: An individual with a capital gain of $750,000 will pay up to $44,429 more in taxes.

Example 4: Capital Gain of $1,000,000

Purchase Price: $500,000
Sale Price: $1,500,000

Capital Gain ($1,500,000 - $500,000): $1,000,000

Taxable Amount (before June 25): $500,000
Taxable Amount (after June 25): $624,500

Tax Paid (before June 25): $267,650
Tax Paid (after June 25): $334,295

The Result: An individual with a capital gain of $1,000,000 will pay up to $66,645 more in taxes.

Understanding the actual numbers behind the increased capital gains taxes, not just the headlines, is essential for making informed decisions.

If you can provide this type of clarity to your clients, it ensures they are fully prepared for their financial outcomes, leading to better decision-making and peace of mind.