H.R.1857 - Capital Gains Inflation Relief Act of 2025 (119th Congress)
Summary
H.R.1857, the Capital Gains Inflation Relief Act of 2025, proposes amending the Internal Revenue Code of 1986 to index certain assets for capital gains calculations. This adjustment would apply to assets held for more than three years, excluding corporations but including common stock, digital assets, and tangible property used in trade or business. The indexed basis would be substituted for the adjusted basis when determining gain or loss, accounting for inflation using the GDP deflator.
Expected Effects
The bill aims to reduce the tax burden on capital gains by adjusting the basis of assets for inflation. This could lead to lower tax liabilities for individuals selling assets that have appreciated over time, potentially incentivizing investment. The changes would primarily affect individuals and pass-through entities, with specific rules for regulated investment companies and real estate investment trusts.
Potential Benefits
- Potentially reduces the tax burden on long-term investments for individuals.
- May incentivize investment in certain assets like stocks and digital assets.
- Could simplify capital gains calculations by accounting for inflation.
- Provides specific rules for pass-through entities, offering clarity for partnerships and S corporations.
- May encourage longer holding periods for assets.
Most Benefited Areas:
Potential Disadvantages
- Excludes corporations from the inflation adjustment, potentially creating disparities.
- Complexity in calculating the indexed basis, requiring detailed records of purchase price and GDP deflator data.
- Potential for abuse through transfers designed to increase the indexing adjustment.
- May disproportionately benefit higher-income individuals with substantial investment portfolios.
- The exclusion of certain foreign corporations and investment vehicles may create loopholes or unintended consequences.
Most Disadvantaged Areas:
Constitutional Alignment
The bill aligns with the constitutional power of Congress to lay and collect taxes, as outlined in Article I, Section 8, Clause 1. The Sixteenth Amendment grants Congress the power to tax income, including capital gains, without apportionment among the states. The bill's provisions for indexing assets for inflation fall within this broad authority to define and regulate the taxation of income and capital gains.
Impact Assessment: Things You Care About ⓘ
This action has been evaluated across 19 key areas that matter to you. Scores range from 1 (highly disadvantageous) to 5 (highly beneficial).