Sponsor
Warren Davidson
Representative · R-OH
Representative · R-OH
The bill reduces reported capital gains for many long‑term noncorporate investors by indexing basis for inflation, but it does so at the cost of greater tax‑code complexity, heavier recordkeeping and audit risk, potential distortions for businesses excluded from the relief, and added uncertainty around anti‑abuse and crypto valuation rules.
Noncorporate long‑term holders of indexed assets (individual taxpayers, including many middle‑class investors and small‑business owners) will typically report lower taxable capital gains because basis can be adjusted for inflation for assets held over three years, reducing tax paid on inflation-driven gains.
Investors in regulated investment companies (RICs) and REITs can apply the inflation adjustment at the entity level, which can align pass‑through capital accounting with investor outcomes and potentially reduce investor-level tax burdens.
Using the GDP implicit price deflator as the indexing measure provides an objective, economy‑wide inflation benchmark, reducing disputes and administrability questions about which inflation index to use.
The tax provision adds substantial new complexity to the Code (special rules for partnerships, S corps, RICs/REITs, short sales, related‑party rules), increasing compliance and tax‑preparation costs for taxpayers and financial institutions.
Taxpayers must retain original purchase documentation and follow detailed recordkeeping rules, raising administrative burdens, preparation time, and potential audit exposure for people with long‑held or complex holdings.
Indexing is limited to noncorporate taxpayers and excludes depreciation/amortization effects, creating tax mismatches and incentives for business owners to change entity form, which could distort small‑business decisions and result in uneven treatment.
Based on analysis of 2 sections of legislative text.
Permits inflation indexing of basis for certain indexed assets held >3 years for non‑corporate taxpayers, reducing taxable capital gains for assets acquired after Dec 31, 2025.
Allows certain non-corporate taxpayers who hold listed assets for more than three years to adjust the asset's tax basis for inflation when computing capital gain or loss, using the GDP implicit price deflator. The rule applies to common C‑corporation stock, specified digital assets recorded on cryptographically secured ledgers, and tangible property acquired after December 31, 2025, with multiple special rules to limit abuse and address partnerships, trusts, dealers, and related‑party transactions.
Official title: To amend the Internal Revenue Code of 1986 to provide for the indexing of certain assets for purposes of determining gain or loss.
Introduced March 5, 2025 by Warren Davidson · Last progress March 5, 2025