Insurance Tax Rules Shift: Bill Alters Debt Treatment, Extends Loss Carryovers to 10 Years Starting 2026

The "Secure Family Futures Act of 2025" proposes specific tweaks to the Internal Revenue Code impacting how certain insurance companies handle debt and losses for tax purposes. Set to apply from 2026 onwards, the bill reclassifies certain debt holdings and gives these companies more time to utilize capital losses.

Debt Gets a Different Tax Label

First up, Section 2 changes how debt instruments – think notes, bonds, debentures – are treated for tax purposes when held by specific insurance companies. Currently, these might be considered 'capital assets,' meaning profits or losses from selling them are typically taxed at capital gains rates. This bill proposes excluding such debt acquired after December 31, 2025, from being treated as a capital asset for these insurers. This shift could mean gains or losses on this debt might be treated as ordinary income or loss, which comes with different tax rules and rates. It essentially changes the tax calculation for profits or losses these companies make on certain debt investments.

A Longer Runway for Losses

Section 3 tackles capital losses. When investments lose value, companies can often use these 'capital losses' to offset taxes on investment gains ('capital gains'). Currently, insurance companies generally have 5 years to 'carry over' unused capital losses to offset future gains. This bill doubles that window, extending the capital loss carryover period to 10 years for applicable insurance companies. This applies to losses incurred in tax years starting after December 31, 2025. Practically, this gives eligible insurers more breathing room and flexibility to manage their tax liabilities, especially after periods of significant investment losses.

Who Qualifies for the Changes?

The key term here is "applicable insurance company." The bill defines this to include most insurance companies except for certain smaller companies (based on asset thresholds, though specifics aren't in this summary text) and foreign corporations not engaged in a U.S. insurance business. Face-amount certificate companies under the Investment Company Act of 1940 are also included. This means the new debt treatment and the extended loss carryover period won't apply universally across the insurance sector; smaller domestic players and foreign insurers are explicitly left out of these specific adjustments.