Capital Gains Inflation Relief Act of 2025

Inflation Relief on Asset Gains: For taxpayers holding certain assets for more than three years, the law allows the use of an indexed basis instead of the adjusted basis to determine gain or loss (Section 2(a)(1)). This helps account for inflation by increasing the basis of the asset based on the gross domestic product defator (Section 2(c)).

Inclusion of Digital Assets: The definition of an "indexed asset" specifically includes digital assets that are recorded on a cryptographically secured distributed ledger and designed for economic or access rights (Section 2(b)(1)(B) and 2(b)(3)).

Benefits for Investment Entities: The adjustment is allowed for qualified investment entities, which include regulated investment companies and real estate investment trusts (Section 2(e)(1)(A)).

Pass-Through Benefits: For partnerships, S corporations, and common trust funds, the adjustment made at the entity level is passed through to the partners, shareholders, or participants (Section 2(f)).

Documentation Burden: The indexing of an asset only applies if the taxpayer has written documentation of the original purchase price paid or incurred to acquire that asset (Section 2(a)(3)).

Exclusion of Depreciation Benefits: Deductions for depreciation, depletion, and amortization are determined without regard to the inflation indexing (Section 2(a)(2)).

Restrictions on Risk-Reducing Transactions: If a taxpayer enters into a transaction that substantially reduces the risk of loss from holding an asset, that asset is not treated as an indexed asset for that period (Section 2(d)(1)).

Limitations on Transfers: The Secretary of the Treasury has the authority to disallow part or all of the adjustment if a person transfers property with the principal purpose of securing or increasing the inflation adjustment (Section 2(h)).

Restrictions on Related Person Dispositions: The indexing rules do not apply to sales or other dispositions of property between related persons, unless the basis in the hands of the transferee is a substituted basis (Section 2(g)(1)).

Loss Determination Limits: The indexing adjustment is not taken into account when determining the amount of any loss on a sale or exchange of an interest in a partnership, S corporation, or common trust fund (Section 2(f)(4)).