HR1857-119

What This Bill Does

The Capital Gains Inflation Relief Act creates a new Internal Revenue Code section 1023 to index basis for inflation when a noncorporate taxpayer sells or otherwise disposes of an indexed asset held for more than three years. Indexed assets include common stock in C corporations, certain foreign corporation stock traded on established securities markets, American depositary receipts, digital assets recorded on cryptographically secured distributed ledgers and designed to confer economic or access rights, and tangible capital or section 1231 property. Indexed basis equals adjusted basis plus an inflation adjustment based on the GDP deflator between acquisition and disposition. The rule requires written documentation of original purchase price, does not affect depreciation, depletion, or amortization, suspends indexed status during substantially reduced risk periods, increases amount realized for long short sales, and includes detailed rules for RICs, REITs, partnerships, S corporations, common trust funds, additions to basis, related persons, anti-abuse transfers, distributions, and ordinary-loss limits. It applies to indexed assets acquired after December 31, 2025, in taxable years ending after that date.

Who Benefits and How

Individual investors benefit because inflationary appreciation is excluded from taxable gain on qualifying long-held indexed assets. Digital asset holders benefit because qualifying crypto-style assets can receive indexed basis treatment after the holding period. Real estate and business property owners benefit when tangible capital or section 1231 property qualifies for inflation indexing. RIC, REIT, partnership, S corporation, and common trust fund investors benefit from pass-through or ratio rules that can transmit indexing benefits.

Who Bears the Burden and How

The Treasury Department must write regulations for indexing, anti-abuse rules, investment entities, partnerships, and documentation. Internal Revenue Service exam staff must verify purchase-price documentation, holding periods, GDP-deflator calculations, and risk-reduction transactions. Federal taxpayers bear revenue loss because inflation-indexed basis lowers taxable capital gains. Corporate taxpayers are excluded from direct use of the new indexed-basis rule.

Key Provisions

• Creates indexed basis for noncorporate taxpayers selling qualifying assets held more than three years.
• Defines indexed assets to include C corporation stock, certain foreign traded stock, digital assets, and tangible property.
• Requires GDP-deflator calculations and written original purchase-price documentation.
• Limits abuse through risk-reduction, short-sale, related-party, investment-entity, and ordinary-loss rules.