II
119THCONGRESS
1
STSESSION S. 798
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 SENATE OF THE UNITED STATES
FEBRUARY27, 2025
Mr. C
RUZ(for himself and Mr. TILLIS) introduced the following bill; which
was read twice and referred to the Committee on Finance
A BILL
To amend the Internal Revenue Code of 1986 to provide
for the indexing of certain assets for purposes of deter-
mining gain or loss.
Be it enacted by the Senate and House of Representa-1
tives of the United States of America in Congress assembled, 2
SECTION 1. SHORT TITLE. 3
This Act may be cited as the ‘‘Capital Gains Inflation 4
Relief Act of 2025’’. 5
SEC. 2. INDEXING OF CERTAIN ASSETS FOR PURPOSES OF 6
DETERMINING GAIN OR LOSS. 7
(a) I
NGENERAL.—Part II of subchapter O of chap-8
ter 1 of the Internal Revenue Code of 1986 (relating to 9
basis rules of general application) is amended by redesig-10
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nating section 1023 as section 1024 and by inserting after 1
section 1022 the following new section: 2
‘‘SEC. 1023. INDEXING OF CERTAIN ASSETS FOR PURPOSES 3
OF DETERMINING GAIN OR LOSS. 4
‘‘(a) G
ENERALRULE.— 5
‘‘(1) I
NDEXED BASIS SUBSTITUTED FOR AD -6
JUSTED BASIS.—Solely for purposes of determining 7
gain or loss on the sale or other disposition by a tax-8
payer (other than a corporation) of an indexed asset 9
which has been held for more than 3 years, the in-10
dexed basis of the asset shall be substituted for its 11
adjusted basis. 12
‘‘(2) E
XCEPTION FOR DEPRECIATION , ETC.— 13
The deductions for depreciation, depletion, and am-14
ortization shall be determined without regard to the 15
application of paragraph (1) to the taxpayer or any 16
other person. 17
‘‘(3) W
RITTEN DOCUMENTATION REQUIRE -18
MENT.—Paragraph (1) shall apply only with respect 19
to indexed assets for which the taxpayer has written 20
documentation of the original purchase price paid or 21
incurred by the taxpayer to acquire such asset. 22
‘‘(b) I
NDEXEDASSET.— 23
‘‘(1) I
N GENERAL.—For purposes of this sec-24
tion, the term ‘indexed asset’ means— 25
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‘‘(A) any common stock in a C corporation 1
(other than a foreign corporation), 2
‘‘(B) any digital asset, or 3
‘‘(C) any tangible property, 4
which is a capital asset or property used in the trade 5
or business (as defined in section 1231(b)). 6
‘‘(2) S
TOCK IN CERTAIN FOREIGN CORPORA -7
TIONS INCLUDED.—For purposes of this section— 8
‘‘(A) I
N GENERAL.—The term ‘indexed 9
asset’ includes common stock in a foreign cor-10
poration which is regularly traded on an estab-11
lished securities market. 12
‘‘(B) E
XCEPTION.—Subparagraph (A) 13
shall not apply to— 14
‘‘(i) stock of a foreign investment 15
company, 16
‘‘(ii) stock in a passive foreign invest-17
ment company (as defined in section 18
1297), 19
‘‘(iii) stock in a foreign corporation 20
held by a United States person who meets 21
the requirements of section 1248(a)(2), 22
and 23
‘‘(iv) stock in a foreign personal hold-24
ing company. 25
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‘‘(C) TREATMENT OF AMERICAN DEPOSI -1
TORY RECEIPTS.—An American depository re-2
ceipt for common stock in a foreign corporation 3
shall be treated as common stock in such cor-4
poration. 5
‘‘(3) D
IGITAL ASSET.—For purposes of this sec-6
tion, the term ‘digital asset’ means any natively elec-7
tronic asset which— 8
‘‘(A) is recorded on a cryptographically se-9
cured distributed ledger, and 10
‘‘(B) is designed to confer only economic 11
or access rights. 12
‘‘(c) I
NDEXEDBASIS.—For purposes of this sec-13
tion— 14
‘‘(1) G
ENERAL RULE.—The indexed basis for 15
any asset is— 16
‘‘(A) the adjusted basis of the asset, in-17
creased by 18
‘‘(B) the applicable inflation adjustment. 19
‘‘(2) A
PPLICABLE INFLATION ADJUSTMENT .— 20
The applicable inflation adjustment for any asset is 21
an amount equal to— 22
‘‘(A) the adjusted basis of the asset, multi-23
plied by 24
‘‘(B) the percentage (if any) by which— 25
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‘‘(i) the gross domestic product 1
deflator for the last calendar quarter end-2
ing before the asset is disposed of, exceeds 3
‘‘(ii) the gross domestic product 4
deflator for the last calendar quarter end-5
ing before the asset was acquired by the 6
taxpayer. 7
The percentage under subparagraph (B) shall be 8
rounded to the nearest
1
⁄10of 1 percentage point. 9
‘‘(3) G
ROSS DOMESTIC PRODUCT DEFLATOR .— 10
The gross domestic product deflator for any cal-11
endar quarter is the implicit price deflator for the 12
gross domestic product for such quarter (as shown 13
in the last revision thereof released by the Secretary 14
of Commerce before the close of the following cal-15
endar quarter). 16
‘‘(d) S
USPENSION OFHOLDINGPERIODWHEREDI-17
MINISHEDRISK OFLOSS; TREATMENT OF SHORT 18
S
ALES.— 19
‘‘(1) I
N GENERAL.—If the taxpayer (or a re-20
lated person) enters into any transaction which sub-21
stantially reduces the risk of loss from holding any 22
asset, such asset shall not be treated as an indexed 23
asset for the period of such reduced risk. 24
‘‘(2) S
HORT SALES.— 25
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‘‘(A) IN GENERAL.—In the case of a short 1
sale of an indexed asset with a short sale period 2
in excess of 3 years, for purposes of this title, 3
the amount realized shall be an amount equal 4
to the amount realized (determined without re-5
gard to this paragraph) increased by the appli-6
cable inflation adjustment. In applying sub-7
section (c)(2) for purposes of the preceding sen-8
tence, the date on which the property is sold 9
short shall be treated as the date of acquisition 10
and the closing date for the sale shall be treat-11
ed as the date of disposition. 12
‘‘(B) S
HORT SALE PERIOD.—For purposes 13
of subparagraph (A), the short sale period be-14
gins on the day that the property is sold and 15
ends on the closing date for the sale. 16
‘‘(e) T
REATMENT OF REGULATED INVESTMENT 17
C
OMPANIES ANDREALESTATEINVESTMENTTRUSTS.— 18
‘‘(1) A
DJUSTMENTS AT ENTITY LEVEL .— 19
‘‘(A) I
N GENERAL.—Except as otherwise 20
provided in this paragraph, the adjustment 21
under subsection (a) shall be allowed to any 22
qualified investment entity (including for pur-23
poses of determining the earnings and profits of 24
such entity). 25
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‘‘(B) EXCEPTION FOR CORPORATE SHARE -1
HOLDERS.—Under regulations— 2
‘‘(i) in the case of a distribution by a 3
qualified investment entity (directly or in-4
directly) to a corporation— 5
‘‘(I) the determination of whether 6
such distribution is a dividend shall be 7
made without regard to this section, 8
and 9
‘‘(II) the amount treated as gain 10
by reason of the receipt of any capital 11
gain dividend shall be increased by the 12
percentage by which the entity’s net 13
capital gain for the taxable year (de-14
termined without regard to this sec-15
tion) exceeds the entity’s net capital 16
gain for such year determined with re-17
gard to this section, and 18
‘‘(ii) there shall be other appropriate 19
adjustments (including deemed distribu-20
tions) so as to ensure that the benefits of 21
this section are not allowed (directly or in-22
directly) to corporate shareholders of quali-23
fied investment entities. 24
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For purposes of the preceding sentence, any 1
amount includible in gross income under section 2
852(b)(3)(D) shall be treated as a capital gain 3
dividend and an S corporation shall not be 4
treated as a corporation. 5
‘‘(C) E
XCEPTION FOR QUALIFICATION 6
PURPOSES.—This section shall not apply for 7
purposes of sections 851(b) and 856(c). 8
‘‘(D) E
XCEPTION FOR CERTAIN TAXES IM -9
POSED AT ENTITY LEVEL .— 10
‘‘(i) T
AX ON FAILURE TO DISTRIBUTE 11
ENTIRE GAIN.—If any amount is subject to 12
tax under section 852(b)(3)(A) for any 13
taxable year, the amount on which tax is 14
imposed under such section shall be in-15
creased by the percentage determined 16
under subparagraph (B)(i)(II). A similar 17
rule shall apply in the case of any amount 18
subject to tax under paragraph (2) or (3) 19
of section 857(b) to the extent attributable 20
to the excess of the net capital gain over 21
the deduction for dividends paid deter-22
mined with reference to capital gain divi-23
dends only. The first sentence of this 24
clause shall not apply to so much of the 25
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amount subject to tax under section 1
852(b)(3)(A) as is designated by the com-2
pany under section 852(b)(3)(D). 3
‘‘(ii) O
THER TAXES.—This section 4
shall not apply for purposes of determining 5
the amount of any tax imposed by para-6
graph (4), (5), or (6) of section 857(b). 7
‘‘(2) A
DJUSTMENTS TO INTERESTS HELD IN 8
ENTITY.— 9
‘‘(A) R
EGULATED INVESTMENT COMPA -10
NIES.—Stock in a regulated investment com-11
pany (within the meaning of section 851) shall 12
be an indexed asset for any calendar quarter in 13
the same ratio as— 14
‘‘(i) the average of the fair market 15
values of the indexed assets held by such 16
company at the close of each month during 17
such quarter, bears to 18
‘‘(ii) the average of the fair market 19
values of all assets held by such company 20
at the close of each such month. 21
‘‘(B) R
EAL ESTATE INVESTMENT 22
TRUSTS.—Stock in a real estate investment 23
trust (within the meaning of section 856) shall 24
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be an indexed asset for any calendar quarter in 1
the same ratio as— 2
‘‘(i) the fair market value of the in-3
dexed assets held by such trust at the close 4
of such quarter, bears to 5
‘‘(ii) the fair market value of all as-6
sets held by such trust at the close of such 7
quarter. 8
‘‘(C) R
ATIO OF 80 PERCENT OR MORE .—If 9
the ratio for any calendar quarter determined 10
under subparagraph (A) or (B) would (but for 11
this subparagraph) be 80 percent or more, such 12
ratio for such quarter shall be 100 percent. 13
‘‘(D) R
ATIO OF 20 PERCENT OR LESS .—If 14
the ratio for any calendar quarter determined 15
under subparagraph (A) or (B) would (but for 16
this subparagraph) be 20 percent or less, such 17
ratio for such quarter shall be zero. 18
‘‘(E) L
OOK-THRU OF PARTNERSHIPS .—For 19
purposes of this paragraph, a qualified invest-20
ment entity which holds a partnership interest 21
shall be treated (in lieu of holding a partnership 22
interest) as holding its proportionate share of 23
the assets held by the partnership. 24
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‘‘(3) TREATMENT OF RETURN OF CAPITAL DIS -1
TRIBUTIONS.—Except as otherwise provided by the 2
Secretary, a distribution with respect to stock in a 3
qualified investment entity which is not a dividend 4
and which results in a reduction in the adjusted 5
basis of such stock shall be treated as allocable to 6
stock acquired by the taxpayer in the order in which 7
such stock was acquired. 8
‘‘(4) Q
UALIFIED INVESTMENT ENTITY .—For 9
purposes of this subsection, the term ‘qualified in-10
vestment entity’ means— 11
‘‘(A) a regulated investment company 12
(within the meaning of section 851), and 13
‘‘(B) a real estate investment trust (within 14
the meaning of section 856). 15
‘‘(f) O
THERPASS-THRUENTITIES.— 16
‘‘(1) P
ARTNERSHIPS.— 17
‘‘(A) I
N GENERAL.—In the case of a part-18
nership, the adjustment made under subsection 19
(a) at the partnership level shall be passed 20
through to the partners. 21
‘‘(B) S
PECIAL RULE IN THE CASE OF SEC -22
TION 754 ELECTIONS.—In the case of a transfer 23
of an interest in a partnership with respect to 24
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which the election provided in section 754 is in 1
effect— 2
‘‘(i) the adjustment under section 3
743(b)(1) shall, with respect to the trans-4
feror partner, be treated as a sale of the 5
partnership assets for purposes of applying 6
this section, and 7
‘‘(ii) with respect to the transferee 8
partner, the partnership’s holding period 9
for purposes of this section in such assets 10
shall be treated as beginning on the date 11
of such adjustment. 12
‘‘(2) S
CORPORATIONS.—In the case of an S 13
corporation, the adjustment made under subsection 14
(a) at the corporate level shall be passed through to 15
the shareholders. This section shall not apply for 16
purposes of determining the amount of any tax im-17
posed by section 1374 or 1375. 18
‘‘(3) C
OMMON TRUST FUNDS .—In the case of a 19
common trust fund, the adjustment made under sub-20
section (a) at the trust level shall be passed through 21
to the participants. 22
‘‘(4) I
NDEXING ADJUSTMENT DISREGARDED IN 23
DETERMINING LOSS ON SALE OF INTEREST IN ENTI -24
TY.—Notwithstanding the preceding provisions of 25
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this subsection, for purposes of determining the 1
amount of any loss on a sale or exchange of an in-2
terest in a partnership, S corporation, or common 3
trust fund, the adjustment made under subsection 4
(a) shall not be taken into account in determining 5
the adjusted basis of such interest. 6
‘‘(g) D
ISPOSITIONSBETWEENRELATEDPERSONS.— 7
‘‘(1) I
N GENERAL.—This section shall not apply 8
to any sale or other disposition of property between 9
related persons except to the extent that the basis 10
of such property in the hands of the transferee is a 11
substituted basis. 12
‘‘(2) R
ELATED PERSONS DEFINED .—For pur-13
poses of this section, the term ‘related persons’ 14
means— 15
‘‘(A) persons bearing a relationship set 16
forth in section 267(b), and 17
‘‘(B) persons treated as single employer 18
under subsection (b) or (c) of section 414. 19
‘‘(h) T
RANSFERSTOINCREASEINDEXINGADJUST-20
MENT.—If any person transfers cash, debt, or any other 21
property to another person and the principal purpose of 22
such transfer is to secure or increase an adjustment under 23
subsection (a), the Secretary may disallow part or all of 24
such adjustment or increase. 25
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‘‘(i) SPECIALRULES.—For purposes of this section— 1
‘‘(1) T
REATMENT OF IMPROVEMENTS , ETC.—If 2
there is an addition to the adjusted basis of any tan-3
gible property or of any stock in a corporation dur-4
ing the taxable year by reason of an improvement to 5
such property or a contribution to capital of such 6
corporation— 7
‘‘(A) such addition shall never be taken 8
into account under subsection (c)(1)(A) if the 9
aggregate amount thereof during the taxable 10
year with respect to such property or stock is 11
less than $1,000, and 12
‘‘(B) such addition shall be treated as a 13
separate asset acquired at the close of such tax-14
able year if the aggregate amount thereof dur-15
ing the taxable year with respect to such prop-16
erty or stock is $1,000 or more. 17
A rule similar to the rule of the preceding sentence 18
shall apply to any other portion of an asset to the 19
extent that separate treatment of such portion is ap-20
propriate to carry out the purposes of this section. 21
‘‘(2) A
SSETS WHICH ARE NOT INDEXED ASSETS 22
THROUGHOUT HOLDING PERIOD .—The applicable in-23
flation adjustment shall be appropriately reduced for 24
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periods during which the asset was not an indexed 1
asset. 2
‘‘(3) T
REATMENT OF CERTAIN DISTRIBU -3
TIONS.—A distribution with respect to stock in a 4
corporation which is not a dividend shall be treated 5
as a disposition. 6
‘‘(4) S
ECTION CANNOT INCREASE ORDINARY 7
LOSS.—To the extent that (but for this paragraph) 8
this section would create or increase a net ordinary 9
loss to which section 1231(a)(2) applies or an ordi-10
nary loss to which any other provision of this title 11
applies, such provision shall not apply. The taxpayer 12
shall be treated as having a long-term capital loss in 13
an amount equal to the amount of the ordinary loss 14
to which the preceding sentence applies. 15
‘‘(5) A
CQUISITION DATE WHERE THERE HAS 16
BEEN PRIOR APPLICATION OF SUBSECTION (a)(1) 17
WITH RESPECT TO THE TAXPAYER .—If there has 18
been a prior application of subsection (a)(1) to an 19
asset while such asset was held by the taxpayer, the 20
date of acquisition of such asset by the taxpayer 21
shall be treated as not earlier than the date of the 22
most recent such prior application. 23
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‘‘(j) REGULATIONS.—The Secretary shall prescribe 1
such regulations as may be necessary or appropriate to 2
carry out the purposes of this section.’’. 3
(b) C
LERICALAMENDMENT.—The table of sections 4
for part II of subchapter O of chapter 1 of the Internal 5
Revenue Code of 1986 is amended by striking the item 6
relating to section 1023 and by inserting after the item 7
relating to section 1022 the following new item: 8
‘‘Sec. 1023. Indexing of certain assets for purposes of determining gain or loss.
‘‘Sec. 1024. Cross references.’’.
(c) EFFECTIVEDATE.—The amendments made by 9
this section shall apply to indexed assets acquired by the 10
taxpayer after December 31, 2025, in taxable years ending 11
after such date. 12
Æ
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