Capital Gains Inflation Relief Act of 2025
Sponsored By: Representative Davidson
Introduced
Summary
This bill would let long-term individual investors adjust an asset's tax basis for inflation when computing capital gains. It targets non-corporate taxpayers who hold eligible assets more than three years and covers common stock, digital assets, and certain business property.
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- Non-corporate investors: Owners of indexed assets held more than three years could use an inflation-adjusted basis to lower reported capital gains. Taxpayers must keep written proof of the original purchase price and depreciation or amortization deductions are not recalculated.
- Digital and foreign stock rules: "Digital asset" is defined as a native electronic asset on a cryptographically secured distributed ledger and may qualify. Foreign common stock traded on established markets can be indexed with exceptions for certain foreign companies, and American depository receipts follow the underlying stock.
- Investment funds and pass-throughs: Regulated investment companies and REITs apply indexing at the entity level with quarterly ratio rules and 80%/20% thresholds for look-through treatment. Partnerships, S corporations, and common trust funds pass indexing adjustments to owners with special rules when a 754 election applies.
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Bill Overview
Analyzed Economic Effects
4 provisions identified: 2 benefits, 1 costs, 1 mixed.
Inflation indexing for long-held assets
This bill would let non‑corporate taxpayers use an inflation‑indexed cost basis when they sell certain assets held more than 3 years. You would need written proof of the original purchase price. Covered assets include many U.S. stocks, some regularly traded foreign stocks, digital assets, and tangible business property. The inflation change would use GDP deflators for the quarter before you bought and the quarter before you sold, rounded to the nearest 0.1 percentage point. If enacted, this would apply to assets you acquire after December 31, 2025.
Inflation add-on for long short sales
If a short sale stays open more than 3 years, the amount you realize would be increased by an inflation adjustment. The “buy” date would be the date you sold short, and the “sell” date would be when you close the short. The inflation change would use GDP deflators for the quarter before each date, rounded to 0.1 percentage point. This could raise your taxable gain. This rule would apply to sales tied to assets acquired after December 31, 2025.
Indexing through mutual funds and REITs
Mutual funds and REITs would compute indexing at the fund level and pass adjustments to investors. Each quarter, funds would measure how much of their assets qualify; 80% or more would count as 100%, and 20% or less would count as zero. The rules would look through fund partnerships and include safeguards so corporations do not get these benefits. Partners, S‑corp shareholders, and common trust fund participants would also receive pass‑through adjustments. These rules would apply to assets acquired after December 31, 2025.
Guardrails and limits on indexing
Indexing would pause during any period when you or a related person largely hedge away the risk of loss. Related‑person sales would generally not get indexing, and some corporate payouts that are not dividends would count as a sale; return‑of‑capital basis cuts would be applied to shares in the order bought. If indexing would create or increase an ordinary loss, that part would instead be a long‑term capital loss. Depreciation, depletion, and amortization would not change due to indexing. Small improvements under $1,000 in a year would be ignored for indexing; $1,000 or more would be treated as a separate asset at year‑end. The IRS could deny indexing boosts from transfers mainly meant to inflate the adjustment. These rules would apply to assets acquired after December 31, 2025.
Sponsors & CoSponsors
Sponsor
Davidson
OH • R
Cosponsors
There are no cosponsors for this bill.
Roll Call Votes
No roll call votes available for this bill.
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