New Bill Eliminates Capital Gains Tax Break for Investments in China, Russia, and Other Adversaries Starting 2026

This bill, officially titled the “No Capital Gains Allowance for American Adversaries Act,” makes a fundamental change to how profits from certain foreign investments are taxed. Starting January 1, 2026, if you make money selling stocks, securities, or property tied to five specific “countries of concern”—the People’s Republic of China, Russia, Belarus, Iran, and North Korea—that profit will be taxed as ordinary income, not at the lower capital gains rate. This also applies to dividends from companies linked to these countries, stripping them of the qualified dividend tax break.

The End of the Tax Break for Adversary Assets

Right now, if you hold an investment for over a year, the profit (capital gain) is taxed at a lower rate than your paycheck (ordinary income). This bill cuts that break entirely for investments designated as “specified country of concern property.” We’re talking about securities from companies based in, or heavily reliant on assets or employees in, those five countries. The core idea here is simple: disincentivize investing in places the U.S. government views as geopolitical rivals by removing the tax advantage.

This isn't just about stocks. The definition of “specified country of concern property” is broad, covering any property physically located or used inside those countries. The Securities and Exchange Commission (SEC) and the Treasury Secretary have 180 days to hash out the exact, detailed criteria for what counts and to create a public list of every security that falls under this new rule. If you sell one of these restricted securities, the SEC will also require sellers to disclose to buyers that the resulting profit will be taxed as ordinary income.

The Stepped-Up Basis Bombshell for Heirs

For many investors and their families, the most significant change is the elimination of the “stepped-up basis” for these specific assets. Normally, when you inherit an asset, its cost basis (the value used to calculate capital gains tax when you eventually sell it) is “stepped up” to the market value on the day the original owner passed away. This often wipes out years of potential capital gains tax liability for the heir.

Under this bill, that protection disappears for property tied to the countries of concern. If you inherit a stock portfolio heavily invested in Chinese companies, you will inherit the original, often much lower, cost basis that your parent or relative paid for it decades ago. This means when you eventually sell, you could face a massive tax bill on gains that accumulated over your relative’s lifetime, taxed at the higher ordinary income rate, no less. This creates a huge, unexpected financial exposure for surviving family members, making estate planning much more complicated for anyone holding these assets.

What This Means on the Ground

If you’re an investor, this bill gives you a clear deadline: January 1, 2026. Any gains realized before that date are still subject to current tax law. After that, the tax incentive to hold these assets vanishes. For financial firms, this means a major compliance headache as they wait for the SEC and Treasury to define exactly which assets are now toxic from a tax perspective. For the rest of us, it’s a strong signal that the government is using the tax code to actively redraw the lines of acceptable international investment, forcing investors to choose between geopolitical alignment and tax-advantaged returns.