119-hr1857

[Congressional Bills 119th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1857 Introduced in House

    (IH) ]

<DOC>

119th CONGRESS
 1st Session
 H. R. 1857

To amend the Internal Revenue Code of 1986 to provide for the indexing 
 of certain assets for purposes of determining gain or loss.

_______________________________________________________________________

 IN THE HOUSE OF REPRESENTATIVES

 March 5, 2025

 Mr. Davidson introduced the following bill; which was referred to the 
 Committee on Ways and Means

_______________________________________________________________________

 A BILL

To amend the Internal Revenue Code of 1986 to provide for the indexing 
 of certain assets for purposes of determining gain or loss.

 Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

 This Act may be cited as the ``Capital Gains Inflation Relief Act 
of 2025''.

SEC. 2. INDEXING OF CERTAIN ASSETS FOR PURPOSES OF DETERMINING GAIN OR 
 LOSS.

    (a) In General.--Part II of subchapter O of chapter 1 of the 
Internal Revenue Code of 1986 (relating to basis rules of general 
application) is amended by redesignating 

section 1023 as 

section 1024 
and by inserting after 

section 1022 the following new section:

``

SEC. 1023. INDEXING OF CERTAIN ASSETS FOR PURPOSES OF DETERMINING 
 GAIN OR LOSS.

 ``

    (a) General Rule.--
 ``

    (1) Indexed basis substituted for adjusted basis.--Solely 
 for purposes of determining gain or loss on the sale or other 
 disposition by a taxpayer (other than a corporation) of an 
 indexed asset which has been held for more than 3 years, the 
 indexed basis of the asset shall be substituted for its 
 adjusted basis.
 ``

    (2) Exception for depreciation, etc.--The deductions for 
 depreciation, depletion, and amortization shall be determined 
 without regard to the application of paragraph

    (1) to the 
 taxpayer or any other person.
 ``

    (3) Written documentation requirement.--Paragraph

    (1) shall apply only with respect to indexed assets for which the 
 taxpayer has written documentation of the original purchase 
 price paid or incurred by the taxpayer to acquire such asset.
 ``

    (b) Indexed Asset.--
 ``

    (1) In general.--For purposes of this section, the term 
 `indexed asset' means--
 ``
        (A) any common stock in a C corporation (other 
 than a foreign corporation),
 ``
        (B) any digital asset, or
 ``
            (C) any tangible property,
 which is a capital asset or property used in the trade or 
 business (as defined in 

section 1231

    (b) ).
 ``

    (2) Stock in certain foreign corporations included.--For 
 purposes of this section--
 ``
        (A) In general.--The term `indexed asset' 
 includes common stock in a foreign corporation which is 
 regularly traded on an established securities market.
 ``
        (B) Exception.--Subparagraph
        (A) shall not apply 
 to--
 ``
            (i) stock of a foreign investment 
 company,
 ``
            (ii) stock in a passive foreign 
 investment company (as defined in 

section 1297),
 ``
            (iii) stock in a foreign corporation held 
 by a United States person who meets the 
 requirements of 

section 1248

    (a)

    (2) , and
 ``
            (iv) stock in a foreign personal holding 
 company.
 ``
            (C) Treatment of american depository receipts.--
 An American depository receipt for common stock in a 
 foreign corporation shall be treated as common stock in 
 such corporation.
 ``

    (3) Digital asset.--For purposes of this section, the 
 term `digital asset' means any natively electronic asset 
 which--
 ``
        (A) is recorded on a cryptographically secured 
 distributed ledger, and
 ``
        (B) is designed to confer only economic or access 
 rights.
 ``
            (c) Indexed Basis.--For purposes of this section--
 ``

    (1) General rule.--The indexed basis for any asset is--
 ``
        (A) the adjusted basis of the asset, increased by
 ``
        (B) the applicable inflation adjustment.
 ``

    (2) Applicable inflation adjustment.--The applicable 
 inflation adjustment for any asset is an amount equal to--
 ``
        (A) the adjusted basis of the asset, multiplied 
 by
 ``
        (B) the percentage (if any) by which--
 ``
            (i) the gross domestic product deflator 
 for the last calendar quarter ending before the 
 asset is disposed of, exceeds
 ``
            (ii) the gross domestic product deflator 
 for the last calendar quarter ending before the 
 asset was acquired by the taxpayer.
 The percentage under subparagraph
        (B) shall be rounded to the 
 nearest \1/10\ of 1 percentage point.
 ``

    (3) Gross domestic product deflator.--The gross domestic 
 product deflator for any calendar quarter is the implicit price 
 deflator for the gross domestic product for such quarter (as 
 shown in the last revision thereof released by the Secretary of 
 Commerce before the close of the following calendar quarter).
 ``
            (d) Suspension of Holding Period Where Diminished Risk of Loss; 
Treatment of Short Sales.--
 ``

    (1) In general.--If the taxpayer (or a related person) 
 enters into any transaction which substantially reduces the 
 risk of loss from holding any asset, such asset shall not be 
 treated as an indexed asset for the period of such reduced 
 risk.
 ``

    (2) Short sales.--
 ``
        (A) In general.--In the case of a short sale of 
 an indexed asset with a short sale period in excess of 
 3 years, for purposes of this title, the amount 
 realized shall be an amount equal to the amount 
 realized (determined without regard to this paragraph) 
 increased by the applicable inflation adjustment. In 
 applying subsection
            (c) (2) for purposes of the 
 preceding sentence, the date on which the property is 
 sold short shall be treated as the date of acquisition 
 and the closing date for the sale shall be treated as 
 the date of disposition.
 ``
        (B) Short sale period.--For purposes of 
 subparagraph
        (A) , the short sale period begins on the 
 day that the property is sold and ends on the closing 
 date for the sale.
 ``

    (e) Treatment of Regulated Investment Companies and Real Estate 
Investment Trusts.--
 ``

    (1) Adjustments at entity level.--
 ``
        (A) In general.--Except as otherwise provided in 
 this paragraph, the adjustment under subsection

    (a) shall be allowed to any qualified investment entity 
 (including for purposes of determining the earnings and 
 profits of such entity).
 ``
        (B) Exception for corporate shareholders.--Under 
 regulations--
 ``
            (i) in the case of a distribution by a 
 qualified investment entity (directly or 
 indirectly) to a corporation--
 ``
            (I) the determination of whether 
 such distribution is a dividend shall 
 be made without regard to this section, 
 and
 ``
            (II) the amount treated as gain 
 by reason of the receipt of any capital 
 gain dividend shall be increased by the 
 percentage by which the entity's net 
 capital gain for the taxable year 
 (determined without regard to this 
 section) exceeds the entity's net 
 capital gain for such year determined 
 with regard to this section, and
 ``
            (ii) there shall be other appropriate 
 adjustments (including deemed distributions) so 
 as to ensure that the benefits of this section 
 are not allowed (directly or indirectly) to 
 corporate shareholders of qualified investment 
 entities.
 For purposes of the preceding sentence, any amount 
 includible in gross income under 

section 852

    (b)

    (3)
            (D) shall be treated as a capital gain dividend and an S 
 corporation shall not be treated as a corporation.
 ``
            (C) Exception for qualification 

=== purposes ===
-This 
 section shall not apply for purposes of sections 851

    (b) and 856
            (c) .
 ``
            (D) Exception for certain taxes imposed at entity 
 level.--
 ``
            (i) Tax on failure to distribute entire 
 gain.--If any amount is subject to tax under 
 

section 852

    (b)

    (3)
        (A) for any taxable year, the 
 amount on which tax is imposed under such 
 section shall be increased by the percentage 
 determined under subparagraph
        (B)
            (i) 
            (II) . A 
 similar rule shall apply in the case of any 
 amount subject to tax under paragraph

    (2) or

    (3) of 

section 857

    (b) to the extent 
 attributable to the excess of the net capital 
 gain over the deduction for dividends paid 
 determined with reference to capital gain 
 dividends only. The first sentence of this 
 clause shall not apply to so much of the amount 
 subject to tax under 

section 852

    (b)

    (3)
        (A) as is 
 designated by the company under 

section 852

    (b)

    (3)
            (D) .
 ``
            (ii) Other taxes.--This section shall not 
 apply for purposes of determining the amount of 
 any tax imposed by paragraph

    (4) ,

    (5) , or

    (6) of 

section 857

    (b) .
 ``

    (2) Adjustments to interests held in entity.--
 ``
        (A) Regulated investment companies.--Stock in a 
 regulated investment company (within the meaning of 
 

section 851) shall be an indexed asset for any calendar 
 quarter in the same ratio as--
 ``
            (i) the average of the fair market values 
 of the indexed assets held by such company at 
 the close of each month during such quarter, 
 bears to
 ``
            (ii) the average of the fair market 
 values of all assets held by such company at 
 the close of each such month.
 ``
        (B) Real estate investment trusts.--Stock in a 
 real estate investment trust (within the meaning of 
 

section 856) shall be an indexed asset for any calendar 
 quarter in the same ratio as--
 ``
            (i) the fair market value of the indexed 
 assets held by such trust at the close of such 
 quarter, bears to
 ``
            (ii) the fair market value of all assets 
 held by such trust at the close of such 
 quarter.
 ``
            (C) Ratio of 80 percent or more.--If the ratio 
 for any calendar quarter determined under subparagraph
        (A) or
        (B) would (but for this subparagraph) be 80 
 percent or more, such ratio for such quarter shall be 
 100 percent.
 ``
            (D) Ratio of 20 percent or less.--If the ratio 
 for any calendar quarter determined under subparagraph
        (A) or
        (B) would (but for this subparagraph) be 20 
 percent or less, such ratio for such quarter shall be 
 zero.
 ``
        (E) Look-thru of partnerships.--For purposes of 
 this paragraph, a qualified investment entity which 
 holds a partnership interest shall be treated (in lieu 
 of holding a partnership interest) as holding its 
 proportionate share of the assets held by the 
 partnership.
 ``

    (3) Treatment of return of capital distributions.--Except 
 as otherwise provided by the Secretary, a distribution with 
 respect to stock in a qualified investment entity which is not 
 a dividend and which results in a reduction in the adjusted 
 basis of such stock shall be treated as allocable to stock 
 acquired by the taxpayer in the order in which such stock was 
 acquired.
 ``

    (4) Qualified investment entity.--For purposes of this 
 subsection, the term `qualified investment entity' means--
 ``
        (A) a regulated investment company (within the 
 meaning of 

section 851), and
 ``
        (B) a real estate investment trust (within the 
 meaning of 

section 856).
 ``

    (f) Other Pass-Thru Entities.--
 ``

    (1) Partnerships.--
 ``
        (A) In general.--In the case of a partnership, 
 the adjustment made under subsection

    (a) at the 
 partnership level shall be passed through to the 
 partners.
 ``
        (B) Special rule in the case of 

section 754 
 elections.--In the case of a transfer of an interest in 
 a partnership with respect to which the election 
 provided in 

section 754 is in effect--
 ``
            (i) the adjustment under 

section 743

    (b)

    (1) shall, with respect to the transferor 
 partner, be treated as a sale of the 
 partnership assets for purposes of applying 
 this section, and
 ``
            (ii) with respect to the transferee 
 partner, the partnership's holding period for 
 purposes of this section in such assets shall 
 be treated as beginning on the date of such 
 adjustment.
 ``

    (2) S corporations.--In the case of an S corporation, the 
 adjustment made under subsection

    (a) at the corporate level 
 shall be passed through to the shareholders. This section shall 
 not apply for purposes of determining the amount of any tax 
 imposed by 

section 1374 or 1375.
 ``

    (3) Common trust funds.--In the case of a common trust 
 fund, the adjustment made under subsection

    (a) at the trust 
 level shall be passed through to the participants.
 ``

    (4) Indexing adjustment disregarded in determining loss 
 on sale of interest in entity.--Notwithstanding the preceding 
 provisions of this subsection, for purposes of determining the 
 amount of any loss on a sale or exchange of an interest in a 
 partnership, S corporation, or common trust fund, the 
 adjustment made under subsection

    (a) shall not be taken into 
 account in determining the adjusted basis of such interest.
 ``

    (g) Dispositions Between Related Persons.--
 ``

    (1) In general.--This section shall not apply to any sale 
 or other disposition of property between related persons except 
 to the extent that the basis of such property in the hands of 
 the transferee is a substituted basis.
 ``

    (2) Related persons defined.--For purposes of this 
 section, the term `related persons' means--
 ``
        (A) persons bearing a relationship set forth in 
 

section 267

    (b) , and
 ``
        (B) persons treated as single employer under 
 subsection

    (b) or
            (c) of 

section 414.
 ``

    (h) Transfers To Increase Indexing Adjustment.--If any person 
transfers cash, debt, or any other property to another person and the 
principal purpose of such transfer is to secure or increase an 
adjustment under subsection

    (a) , the Secretary may disallow part or all 
of such adjustment or increase.
 ``
            (i) Special Rules.--For purposes of this section--
 ``

    (1) Treatment of improvements, etc.--If there is an 
 addition to the adjusted basis of any tangible property or of 
 any stock in a corporation during the taxable year by reason of 
 an improvement to such property or a contribution to capital of 
 such corporation--
 ``
        (A) such addition shall never be taken into 
 account under subsection
            (c) (1)
        (A) if the aggregate 
 amount thereof during the taxable year with respect to 
 such property or stock is less than $1,000, and
 ``
        (B) such addition shall be treated as a separate 
 asset acquired at the close of such taxable year if the 
 aggregate amount thereof during the taxable year with 
 respect to such property or stock is $1,000 or more.
 A rule similar to the rule of the preceding sentence shall 
 apply to any other portion of an asset to the extent that 
 separate treatment of such portion is appropriate to carry out 
 the purposes of this section.
 ``

    (2) Assets which are not indexed assets throughout 
 holding period.--The applicable inflation adjustment shall be 
 appropriately reduced for periods during which the asset was 
 not an indexed asset.
 ``

    (3) Treatment of certain distributions.--A distribution 
 with respect to stock in a corporation which is not a dividend 
 shall be treated as a disposition.
 ``

    (4) Section cannot increase ordinary loss.--To the extent 
 that (but for this paragraph) this section would create or 
 increase a net ordinary loss to which 

section 1231

    (a)

    (2) applies or an ordinary loss to which any other provision of 
 this title applies, such provision shall not apply. The 
 taxpayer shall be treated as having a long-term capital loss in 
 an amount equal to the amount of the ordinary loss to which the 
 preceding sentence applies.
 ``

    (5) Acquisition date where there has been prior 
 application of subsection

    (a)

    (1) with respect to the 
 taxpayer.--If there has been a prior application of subsection

    (a)

    (1) to an asset while such asset was held by the taxpayer, 
 the date of acquisition of such asset by the taxpayer shall be 
 treated as not earlier than the date of the most recent such 
 prior application.
 ``

    (j) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section.''.

    (b) Clerical Amendment.--The table of sections for part II of 
subchapter O of chapter 1 of the Internal Revenue Code of 1986 is 
amended by striking the item relating to 

section 1023 and by inserting 
after the item relating to 

section 1022 the following new item:

``

Sec. 1023. Indexing of certain assets for purposes of determining 
 gain or loss.
``

Sec. 1024. Cross references.''.
            (c) Effective Date.--The amendments made by this section shall 
apply to indexed assets acquired by the taxpayer after December 31, 
2025, in taxable years ending after such date.
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