Sponsors (2)
The bill makes capital gains taxation fairer for long‑held assets by indexing out inflation and covering digital and pass‑through holdings, but it reduces federal revenue and adds compliance complexity that creates uneven benefits and disadvantages taxpayers without good records.
Individual noncorporate taxpayers who hold qualifying assets for more than three years can exclude inflation from their taxable gains, reducing capital gains tax when they sell long‑held assets.
Owners of digital assets (e.g., crypto) and long‑held tangible property receive explicit inflation‑indexing treatment, protecting them from paying tax on purely inflationary nominal gains.
Investors in and managers of pass‑through entities (partnerships, S corporations, RICs/REITs, common trust funds) can apply indexing at the entity or partner level to align tax outcomes and reduce the risk of double taxation.
All taxpayers indirectly: allowing inflation indexing will reduce taxable capital gains revenue, likely lowering federal receipts and increasing the deficit or creating pressure for offsetting tax increases or spending cuts.
Taxpayers, small businesses, and financial institutions will face increased compliance burdens and higher recordkeeping and professional tax costs because of complex rules for RICs/REITs, partnerships, look‑throughs, anti‑abuse provisions, and documentation requirements.
Certain taxpayers will get uneven or limited benefits due to carve‑outs and exceptions (corporate exclusions, hedged periods, depreciation rules), creating planning complexity and potential unfairness.
Based on analysis of 2 sections of legislative text.
Permits GDP‑deflator inflation indexing of basis for certain noncorporate assets held over three years, replacing adjusted basis with an "indexed basis" subject to exceptions and documentation.
Permits inflation indexing of the tax basis for certain noncorporate taxpayers’ assets held more than three years by replacing the adjusted basis with an "indexed basis" (adjusted basis plus an inflation adjustment computed using the GDP deflator) when computing gain or loss. The rule applies to specified asset types (including certain common C-corporation stock, eligible digital assets recorded on cryptographically secured distributed ledgers that confer only economic or access rights, and tangible property) subject to documentation, exceptions, anti‑abuse rules, and special rules for related parties and pass‑through entities. The change applies only to assets acquired after December 31, 2025, in taxable years ending after that date and includes standards for short sales, hedged positions, treatment of investments held through RICs/REITs and other pass‑throughs, limits on minor improvements, and IRS regulatory authority to implement the rules.
Introduced February 27, 2025 by Rafael Edward Cruz · Last progress February 27, 2025