Unrealized Gains Tax: One Important Thing to Know Now

currency in a flower pot — (Image credit: Getty Images)

Unrealized gains have been a hot topic over the years. That is particularly true during election seasons, which often spotlight divisions over tax fairness and how and when wealth and investment income should be taxed.

For example, former President Biden's FY25 budget proposal called for nearly doubling the capital gains tax rate and for taxing unrealized gains, particularly for the ultra-wealthy.

And, as Kiplinger has reported, there was a lot of talk at that time on social media about whether former Democratic presidential nominee Vice President Kamala Harris would pursue a fictitious “golf tax” or unrealized gains proposals similar to Biden’s.

From just $107.88 $24.99 for Kiplinger Personal Finance

Become a smarter, better informed investor. Subscribe from just ~~$107.88~~ $24.99, plus get up to 4 Special Issues

CLICK FOR FREE ISSUE

https://cdn.mos.cms.futurecdn.net/flexiimages/y99mlvgqmn1763972420.png

Sign up for Kiplinger’s Free Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

So, it is important to understand what unrealized capital gains are and how they may (or may not) impact you as an investor. Let’s dive in.

What are unrealized gains?

An unrealized gain occurs when the value of an asset you own increases, but you haven't sold the asset yet. So, the gains are what some call “paper gains” since they haven’t been realized in a tangible way but exist on paper.

For example, if you buy stock for $100 and its value rises to $150, you generally have an unrealized gain of $50. That gain would become "realized" when you actually sell the stock.

However, the most important thing to know now is that under current U.S. tax law, investors are generally taxed on realized gains. So, what’s the issue?

The reality of plans to tax unrealized gains

Since generally only realized gains are taxed in the U.S., some argue that this allows the already ultra-wealthy to accumulate more wealth while avoiding paying their “fair share” of taxes.

(For instance, billionaires can typically avoid income taxes by living off loans secured by appreciated assets rather than selling those assets, which would trigger capital gains taxes.)

With that in mind, former President Biden proposed a "Billionaire Minimum Tax" that would impose a 25% minimum tax rate on total income for households with over $100 million in assets.

At the time, the White House said the measure would affect only a tiny fraction of taxpayers but could raise significant revenue.

Biden also proposed taxing unrealized gains at death. That proposal would have essentially ended the practice of “stepping up” the basis for gains exceeding $5 million for single filers and $10 million per married couple.

Note: Stepped-up basis involves raising the cost basis in appreciated inherited assets to the fair market value at the time of the decedent’s death. Since cost basis helps determine tax amount, stepping up the basis typically minimizes the capital gains taxes owed.

Under current tax law, these accumulated gains can generally be passed down across generations untaxed.
The Biden administration argued that it exacerbates inequality since the practice tends to benefit the wealthy.

Under Biden’s budget proposal, the IRS would tax those gains if the appreciated property isn’t donated to charity.

Additionally, the administration has said the change would be designed so that family-owned businesses and farms are not taxed when transferred to heirs who continue to run the business.

Other exceptions would have applied, for example, involving certain heirs.

What happens if unrealized gains are taxed?

Some critics argue that taxing unrealized gains is unfair and could have negative economic consequences. For example, opponents contend that such proposals:

Tax "paper gains" that may never materialize if asset values decline
Could force asset sales just to pay taxes, disrupting markets
Might discourage long-term investment and risk-taking

Other opponents point to the administrative complexity of valuing non-liquid assets every year. And, of course, there are significant legal questions.

Are taxes on unrealized gains constitutional?

In 2024, a majority of the U.S. Supreme Court justices upheld a mandatory repatriation tax enacted during the Trump administration that many saw as a “wealth tax.”

However, the court left the door open to invalidating future wealth taxes — like a tax on unrealized gains.

For more information on that case, see Kiplinger’s report: Tax on Unrealized Gains Survives Supreme Court.

Unrealized capital gains: Bottom line

The treatment of unrealized gains has become a key point of debate over the years.

For example, some Democrats have generally supported expanding taxation of unrealized gains for the very wealthy.

Meanwhile, some Republicans have generally opposed these measures, seeing them as unconstitutional or government overreach.

However, it’s important to remember that any major changes to tax policy would need to pass through the U.S. Congress. Given deep political divisions and the balance of power, it’s hard to see a controversial proposal like taxing unrealized gains gaining bipartisan approval to pass.

Also, for most investors, unrealized gains taxes are not an immediate concern since current theoretical proposals target only the ultra-wealthy. As mentioned, the courts would likely weigh in on constitutional concerns.

Still, since wealth inequality in the U.S. is an issue, debates over plans to tax unrealized gains will likely continue. The social media frenzy may also prompt some to worry about a "slippery slope," leading to the broader application of these tax proposals going forward.

Regardless of the election outcome, it’s good to stay informed about current capital gains tax rates and rules, including the capital gains tax exclusion for home sales, for example.

If capital gains tax policy and laws change, consult a financial advisor or tax planner to help optimize your tax strategies.

Kelley R. Taylor is the senior tax editor at Kiplinger.com, where she breaks down federal and state tax rules and news to help readers navigate their finances with confidence. A corporate attorney and business journalist with more than 20 years of experience, Kelley has helped taxpayers make sense of shifting U.S. tax law and policy from the Affordable Care Act (ACA) and the Tax Cuts and Jobs Act (TCJA), to SECURE 2.0, the Inflation Reduction Act, and most recently, the 2025 “Big, Beautiful Bill.” She has covered issues ranging from partnerships, carried interest, compensation and benefits, and tax‑exempt organizations to RMDs, capital gains taxes, and energy tax credits. Her award‑winning work has been featured in numerous national and specialty publications.