This bill adjusts the basis of certain assets, like stocks and digital assets, for inflation when calculating capital gains or losses, aiming to provide tax relief on long-term investments.
Ted Cruz
Senator
TX
The "Capital Gains Inflation Relief Act of 2025" amends the Internal Revenue Code to allow taxpayers to adjust the basis of certain assets, like common stock and tangible property, for inflation when calculating capital gains or losses, using the GDP deflator to determine the inflation adjustment. This adjustment applies to indexed assets held for more than 3 years and acquired after December 31, 2025, requiring taxpayers to maintain written records of the original purchase price. The bill includes specific rules for pass-through entities, regulated investment companies, and real estate investment trusts, and disallows adjustments for sales between related persons or when the primary purpose is to increase the indexing adjustment. It also authorizes the Secretary to prescribe regulations to carry out the purposes of this section.
Capital Gains Tax Overhaul: Inflation Relief Kicks in for Assets Held 3+ Years, Starting 2026
The "Capital Gains Inflation Relief Act of 2025" aims to change how capital gains taxes are calculated, but it only applies to assets you buy after December 31, 2025. Here's the deal: if you hold certain assets for more than three years, the government will adjust their original cost to account for inflation before figuring out your tax bill when you sell. That means you're only taxed on the real increase in value, not the part that's just due to rising prices. (SEC. 2.)
What's an 'Indexed Asset' Anyway?
Not everything qualifies for this inflation adjustment. The bill calls the things that do qualify "indexed assets." Think common stocks, digital assets (like Bitcoin, but only if they just give you economic or access rights), and physical property used in a business or trade. There are some exceptions, like stock in certain foreign companies. You'll also need solid records. To get this tax break, you must have written proof of the original purchase price. (SEC. 2.)
How It Actually Works
Let's say you buy some stock in 2026 for $10,000. A few years later, you sell it for $15,000. Normally, you'd have a $5,000 gain. But if inflation (measured by the GDP deflator) went up 10% during that time, the bill lets you adjust your original cost. Your "indexed basis" becomes $11,000 ($10,000 + 10% inflation adjustment), and your taxable gain shrinks to $4,000. (SEC. 2.)
Twists and Turns
This bill has a few wrinkles. If you're playing it safe with investments that reduce your risk of loss, the three-year holding period gets paused. There are also special rules for real estate investment trusts (REITs) and partnerships. Plus, if you try to sell something to a relative just to get this tax break, it won't fly. The IRS also has the power to shut down any schemes where the main goal is to cheat the inflation adjustment. And if you improve a property, only additions worth $1,000 or more count as separate assets for this calculation. (SEC. 2.)
The Bottom Line
This bill could mean lower taxes for some long-term investors, but it adds complexity. It might be a bigger deal for people with significant investments, and it definitely adds some paperwork to the mix. Plus, remember that this can't be used to create or increase a net ordinary loss. (SEC. 2.)