Adjusts capital gains taxes by indexing the basis of certain assets, like stocks and digital assets, to account for inflation, applicable to assets acquired after 2025 and held for over 3 years.
Warren Davidson
Representative
OH-8
The "Capital Gains Inflation Relief Act of 2025" adjusts how capital gains or losses are calculated on the sale of certain assets held for over 3 years by using an "indexed basis" that accounts for inflation. This indexed basis is calculated by increasing the asset's adjusted basis by an "applicable inflation adjustment" based on the percentage increase in the Gross Domestic Product (GDP) deflator during the holding period. The bill outlines specific rules for various types of assets, investment entities, and transactions, and it applies to assets acquired after December 31, 2025. It also requires written documentation of the original purchase price for the indexed asset.
Capital Gains Tax Overhaul: Inflation Relief for Long-Term Investments Kicks Off in 2026
The "Capital Gains Inflation Relief Act of 2025" aims to change how capital gains taxes are calculated for assets held for longer than three years. Instead of taxing gains based on the original purchase price, the bill introduces a new system that adjusts for inflation, potentially lowering tax bills for some investors.
Rewriting the Rules for Long-Term Gains
Starting January 1, 2026, if you sell certain assets you've held for over three years, the profit calculation will factor in inflation. This "indexed basis" means your original purchase price gets bumped up to reflect the rise in the Gross Domestic Product (GDP) deflator. For example, if you bought stock in 2027 for $10,000 and the GDP deflator increased by 10% by the time you sold it in 2031, your adjusted basis would be $11,000. This means you'd only be taxed on the gain above $11,000, not the gain above the original $10,000. (SEC. 2).
What's In, What's Out
This new calculation applies to a specific list of assets: common stocks, digital assets (like cryptocurrencies that only give you economic or access rights), and tangible property used in a business or considered a capital asset. It also includes stock in foreign corporations traded on major exchanges, with some exceptions. (SEC. 2).
Real-World Wrinkles
This change could mean lower taxes for many long-term investors. Imagine a small business owner who sells their building after 10 years. With inflation, the actual profit might be less than it appears on paper. This bill aims to address that. However, it also adds complexity. You'll need solid records of your original purchase price, and the calculations themselves get more involved. (SEC. 2).
There are also some safeguards built in. If you do certain transactions that reduce your risk of losing money on an asset, the three-year holding period clock can be temporarily stopped. The bill also has specific rules for investment companies, real estate investment trusts, partnerships, and S corporations. (SEC. 2). One notable detail: if you are selling your stake in a partnership or S-corp and it is at a loss, the indexing adjustment is disregarded.
Paperwork Headaches?
One key requirement: you must have written documentation of the original purchase price of any asset you want to apply this inflation adjustment to. (SEC. 2). This could be a sticking point for some, especially with assets like digital currencies, where record-keeping might not always be perfect. Furthermore, this bill creates a situation where making improvements or additions of more than $1000 to a property or corporation are treated as separate assets, increasing the volume of calculations. (SEC. 2).