PSA: Taxing Unrealized Gains

This is a quick Public Service Announcement (PSA) and not connected to any particular article. There has been a lot of stuff flying around about an idea that is called “Taxing Unrealized Gains” and it is a highly politicized topic. In general it comes from the left and is reacted to by the right and has gotten more traction as we head towards the 2024 presidential election. That is all I will say about this from a politics standpoint. 

From my perspective of being in the financial advisory world, understanding how things grow, how the world of money works and doing the IRS training to become a certified tax filer - I think it is a lot of smoke and mirrors and nothing to spend much energy on. 

Here’s why. 

First: there isn’t anything to actually tax. It is why we call it unrealized gains. There is value there but not cash. For example, my baseball card collection is worth around $300,000. That’s a lot more than I paid for my collection while buying packs of cards with every penny of allowance and birthday money. If the value of those is perceived to grow to $400k do I owe money? 

Second: unrealized losses. If the value of my cards is $0 because no one is buying them on my eBay account can I write off a $300k loss this year? No way! It would be fun to do and could save me some taxes for sure! 

Third (and the main reason): no lawmaker and current government representative wants this because large portions if not all their large net worth would be subject to taxes. I would not vote for that for myself and I’m a pretty moral and ethical guy. 

It is a challenge of understanding how wealthy people that have high net worths but no cash or income participate in the tax system and be part of supporting a strong social fabric in America. 

What I do know for pretty sure is that taxing unrealized gains might sound like an idea and solution but it really isn’t. Plus, the wealthy rarely ever realize a gain. Here to explain is not Rome, award winning mathlete, and host of the hit show Rome Teaches Money - it’s actually my good friend and comedian Trevor Noah. Enjoy.