by Yieldstreet | Staff
Long-term investing in assets like stocks and real estate typically works well because it allows the investor to ignore the vicissitudes of the market in the short term. Assets tend to appreciate over time, so a long-term mindset enables the investor to potentially benefit from this appreciation.
The U.S. federal tax code has historically offered another benefit to long-term investing for U.S. investors through the treatment of long-term capital gains, however, recent reports suggest that the Biden administration is looking to eliminate some of these advantages through the proposed federal budget. Should the administration get their way, other types of investing may become more attractive.
Here’s a breakdown of what changes are in store and how investors might adjust.
A long-term capital gains tax is applied to any realized gains on assets one has held for more than one year. If one invests in shares of Apple on January 4, 2021, and sells anytime in 2021 for a higher price than they invested, they pay taxes on the capital appreciation the same way they would on wages or other income at their marginal income tax rate. On the other hand, if that investor holds onto the Apple shares until January 5, 2022 or later and then sells to realize a profit, they’ll pay a lower tax rate on the gains. That rate can vary from 0 to 20% depending on the investor’s income (plus a 3.8% investment charge in some cases), vs. the 10-37% range for regular income at the marginal rate. With the power of compounding, this lower tax rate can make a huge difference to what an investor can earn over the course of years or even decades of long-term investing.
The Biden administration has big spending plans for the federal budget, and is aiming to pay for at least part of that through tax increases. Currently all investors, despite their taxable income, are eligible to make use of the capital gains tax discount. Moving forward, Biden has proposed that individuals who earn more than $1 million in adjusted gross income (or $500K if married but filing separately) per year be subject to taxation of capital gains at their ordinary income tax rate. The administration then plans to move up the top tax rate to 39.6%, bringing the new capital gains tax along with it for those in this tax bracket.
The plan also changes how capital gains are taxed when someone dies and passes along an asset to a beneficiary. Currently, the step up in cost basis as a result of the transfer of ownership to the beneficiary wipes out any taxable event for the inheritor, allowing them to own the inherited asset with a new, usually higher tax basis. The new plan specifies that any inherited asset be subject to capital gains tax if the price of the asset being transferred to the beneficiary has increased since the deceased purchased it. Some exceptions would apply, including only taxing gains after the first $1 million in unrealized profits.
Should they go through, these tax changes would only apply to people with over $1 million in adjusted gross income as mentioned, so it’s a relatively small group. Still, other investors might take note, as once this precedent is set it’s possible the threshold will lower over time.
These potential tax changes may make other types of investing attractive. For example, investing in debt could become more lucrative. Returns generated by debt investments are considered income for tax purposes rather than capital gains, therefore the tax treatment of debt investments will not be affected by the proposed changes. Some investors fail to recognize the potential benefits of debt investing because there is no chance for capital growth but the proposed changes may make these investors reconsider their stance.
When done on a platform like on Yieldstreet, investing in debt can offer a wider variety of opportunities and, when well sourced, comes with a potentially attractive risk-reward profile. Investors can target opportunities designed to generate meaningful fixed income. While interest rates at large are quite low – which is also driving both equity market and housing market valuations – there are opportunities in the debt market for a balanced return that are not being targeted by the proposed tax reforms.
It’s inevitable that a new presidential administration will have new tax priorities. These tax changes take effort to enact, but often stick beyond the administration’s term. So investors are right to be eyeing the proposed changes to the long-term capital gains tax treatment.
A higher tax rate does not negate the power of compounding and investing for the long term but it does help level the playing field between investing in equities vs debt. As you build out your diversified portfolio, it may be worth having debt on your radar. Check out Yieldstreet for more fixed income and debt investment opportunities.
Sign up with your email address
Securely verify your identity and link a bank account
Verify your accreditation (if applicable) to access all of Yieldstreet’s offerings.
Our weekly podcast providing ideas about how to make money work for you and bring you closer to your dreams.
1 Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. All securities involve risk and may result in significant losses.
2 Represents a net estimated, unrealized annualized internal rate of return (IRR) of your portfolio and is based by reference to the effective distribution dates and amounts to and from the investments, as well as any outstanding principal and accrued and unpaid interest as of the current date, after deduction of management fees and all other expenses charged to the investments.[read more]
3 "Annual interest" or "Annualized Return" represents an annual target rate of interest or annualized target return and "term" represents the estimated term of the investment. Such target interest or target returns and estimated term are projections of the interest or returns and or term and may ultimately not be achieved. Actual interest or returns and term may be materially different from such projections. This targeted interest or returns and estimated term are based on the underlying investments held by the applicable.
4 Reflects the initial quarterly distribution declared by the board of directors on February 6, 2020, which will be payable to stockholders of record as of June 10, 2020, and the initial offering price of $10 per share.
5 The Fund will cease investing and seek to liquidate the Fund's remaining portfolio no later than 48 months after the Fund's initial closing. It may take up to twelve months thereafter to fully monetize any remaining illiquid investments in the Fund's portfolio.
6 Represents the sum of the interest accrued in the statement period plus the interest paid in the statement period.
7 The internal rate of return ("IRR") represents an average net realized IRR with respect to all matured investments weighted by the investment size of each individual investment, made by private investment vehicles managed by YieldStreet Management, LLC from July 1, 2015 through and including Sept 6th, 2021, after deduction of management fees and all other expenses charged to investments.
8 Investors should carefully consider the investment objectives, risks, charges and expenses of the Yieldstreet Prism Fund before investing. The prospectus for the Yieldstreet Prism Fund contains this and other information about the Fund and can be obtained by emailing [email protected] or by referring to www.yieldstreetprismfund.com. The prospectus should be read carefully before investing in the Fund. Investments in the Fund are not bank deposits (and thus not insured by the FDIC or by any other federal governmental agency) and are not guaranteed by Yieldstreet or any other party.
No communication by YieldStreet Inc. or any of its affiliates (collectively, “Yieldstreet™”), through this website or any other medium, should be construed or is intended to be a recommendation to purchase, sell or hold any security or otherwise to be investment, tax, financial, accounting, legal, regulatory or compliance advice. Nothing on this website is intended as an offer to extend credit, an offer to purchase or sell securities or a solicitation of any securities transaction.
Any financial projections or returns shown on the website are estimated predictions of performance only, are hypothetical, are not based on actual investment results and are not guarantees of future results. Estimated projections do not represent or guarantee the actual results of any transaction, and no representation is made that any transaction will, or is likely to, achieve results or profits similar to those shown. In addition, other financial metrics and calculations shown on the website (including amounts of principal and interest repaid) have not been independently verified or audited and may differ from the actual financial metrics and calculations for any investment, which are contained in the investors’ portfolios. Any investment information contained herein has been secured from sources that Yieldstreet believes are reliable, but we make no representations or warranties as to the accuracy of such information and accept no liability therefor.
Private placement investments are NOT bank deposits (and thus NOT insured by the FDIC or by any other federal governmental agency), are NOT guaranteed by Yieldstreet or any other party, and MAY lose value. Neither the Securities and Exchange Commission nor any federal or state securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any of the information or materials provided by or through the website. Investors must be able to afford the loss of their entire investment.
Investments in private placements are speculative and involve a high degree of risk and those investors who cannot afford to lose their entire investment should not invest. Additionally, investors may receive illiquid and/or restricted securities that may be subject to holding period requirements and/or liquidity concerns. Investments in private placements are highly illiquid and those investors who cannot hold an investment for the long term (at least 5-7 years) should not invest.
Alternative investments should only be part of your overall investment portfolio. Further, the alternative investment portion of your portfolio should include a balanced portfolio of different alternative investments.
Articles or information from third-party media outside of this domain may discuss Yieldstreet or relate to information contained herein, but Yieldstreet does not approve and is not responsible for such content. Hyperlinks to third-party sites, or reproduction of third-party articles, do not constitute an approval or endorsement by Yieldstreet of the linked or reproduced content.
Investing in securities (the "Securities") listed on Yieldstreet™ pose risks, including but not limited to credit risk, interest rate risk, and the risk of losing some or all of the money you invest. Before investing you should: (1) conduct your own investigation and analysis; (2) carefully consider the investment and all related charges, expenses, uncertainties and risks, including all uncertainties and risks described in offering materials; and (3) consult with your own investment, tax, financial and legal advisors. Such Securities are only suitable for accredited investors who understand and willing and able to accept the high risks associated with private investments.
Investing in private placements requires long-term commitments, the ability to afford to lose the entire investment, and low liquidity needs. This website provides preliminary and general information about the Securities and is intended for initial reference purposes only. It does not summarize or compile all the applicable information. This website does not constitute an offer to sell or buy any securities. No offer or sale of any Securities will occur without the delivery of confidential offering materials and related documents. This information contained herein is qualified by and subject to more detailed information in the applicable offering materials. Yieldstreet™ is not registered as a broker-dealer. Yieldstreet™ does not make any representation or warranty to any prospective investor regarding the legality of an investment in any Yieldstreet Securities.
Banking services are provided by Evolve Bank & Trust, Member FDIC.
Investment advisory services are provided by YieldStreet Management, LLC, an investment advisor registered with the Securities and Exchange Commission.
Our site uses a third party service to match browser cookies to your mailing address. We then use another company to send special offers through the mail on our behalf. Our company never receives or stores any of this information and our third parties do not provide or sell this information to any other company or service.