II 

118TH CONGRESS 

1ST SESSION S. 1225 

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 

APRIL 20, 2023 

Mr. CRUZ (for himself, Mr. BRAUN, and Mr. HAGERTY) 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 determining gain or loss. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Capital Gains Inflation 

5 Relief Act of 2023’’. 

6 SEC. 2. INDEXING OF CERTAIN ASSETS FOR PURPOSES OF 

7 DETERMINING GAIN OR LOSS. 

8 (a) IN GENERAL.—Part II of subchapter O of chap9 ter 1 of the Internal Revenue Code of 1986 (relating to 

10 basis rules of general application) is amended by redesigVerDate Sep 11 2014 02:32 Apr 27, 2023 Jkt 039200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S1225.IS S1225

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1 nating section 1023 as section 1024 and by inserting after 

2 section 1022 the following new section: 

3 ‘‘SEC. 1023. INDEXING OF CERTAIN ASSETS FOR PURPOSES 

4 OF DETERMINING GAIN OR LOSS. 

5 ‘‘(a) GENERAL RULE.— 

6 ‘‘(1) INDEXED BASIS SUBSTITUTED FOR AD7 JUSTED BASIS.—Solely for purposes of determining 

8 gain or loss on the sale or other disposition by a tax9 payer (other than a corporation) of an indexed asset 

10 which has been held for more than 3 years, the in11 dexed basis of the asset shall be substituted for its 

12 adjusted basis. 

13 ‘‘(2) EXCEPTION FOR DEPRECIATION, ETC.— 

14 The deductions for depreciation, depletion, and am15 ortization shall be determined without regard to the 

16 application of paragraph (1) to the taxpayer or any 

17 other person. 

18 ‘‘(3) WRITTEN DOCUMENTATION REQUIRE19 MENT.—Paragraph (1) shall apply only with respect 

20 to indexed assets for which the taxpayer has written 

21 documentation of the original purchase price paid or 

22 incurred by the taxpayer to acquire such asset. 

23 ‘‘(b) INDEXED ASSET.— 

24 ‘‘(1) IN GENERAL.—For purposes of this sec25 tion, the term ‘indexed asset’ means— 


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1 ‘‘(A) any common stock in a C corporation 

2 (other than a foreign corporation), 

3 ‘‘(B) any digital asset, or 

4 ‘‘(C) any tangible property, 

5 which is a capital asset or property used in the trade 

6 or business (as defined in section 1231(b)). 

7 ‘‘(2) STOCK IN CERTAIN FOREIGN CORPORA8 TIONS INCLUDED.—For purposes of this section— 

9 ‘‘(A) IN GENERAL.—The term ‘indexed 

10 asset’ includes common stock in a foreign cor11 poration which is regularly traded on an estab12 lished securities market. 

13 ‘‘(B) EXCEPTION.—Subparagraph (A) 

14 shall not apply to— 

15 ‘‘(i) stock of a foreign investment 

16 company, 

17 ‘‘(ii) stock in a passive foreign invest18 ment company (as defined in section 

19 1297), 

20 ‘‘(iii) stock in a foreign corporation 

21 held by a United States person who meets 

22 the requirements of section 1248(a)(2), 

23 and 

24 ‘‘(iv) stock in a foreign personal hold25 ing company. 


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1 ‘‘(C) TREATMENT OF AMERICAN DEPOSI2 TORY RECEIPTS.—An American depository re3 ceipt for common stock in a foreign corporation 

4 shall be treated as common stock in such cor5 poration. 

6 ‘‘(3) DIGITAL ASSET.—For purposes of this sec7 tion, the term ‘digital asset’ means any natively elec8 tronic asset which— 

9 ‘‘(A) is recorded on a cryptographically se10 cured distributed ledger, and 

11 ‘‘(B) is designed to confer only economic 

12 or access rights. 

13 ‘‘(c) INDEXED BASIS.—For purposes of this sec14 tion— 

15 ‘‘(1) GENERAL RULE.—The indexed basis for 

16 any asset is— 

17 ‘‘(A) the adjusted basis of the asset, in18 creased by 

19 ‘‘(B) the applicable inflation adjustment. 

20 ‘‘(2) APPLICABLE INFLATION ADJUSTMENT.— 

21 The applicable inflation adjustment for any asset is 

22 an amount equal to— 

23 ‘‘(A) the adjusted basis of the asset, multi24 plied by 

25 ‘‘(B) the percentage (if any) by which— 


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1 ‘‘(i) the gross domestic product 

2 deflator for the last calendar quarter end3 ing before the asset is disposed of, exceeds 

4 ‘‘(ii) the gross domestic product 

5 deflator for the last calendar quarter end6 ing before the asset was acquired by the 

7 taxpayer. 

8 The percentage under subparagraph (B) shall be 

rounded to the nearest 1 9 ⁄10 of 1 percentage point. 

10 ‘‘(3) GROSS DOMESTIC PRODUCT DEFLATOR.— 

11 The gross domestic product deflator for any cal12 endar quarter is the implicit price deflator for the 

13 gross domestic product for such quarter (as shown 

14 in the last revision thereof released by the Secretary 

15 of Commerce before the close of the following cal16 endar quarter). 

17 ‘‘(d) SUSPENSION OF HOLDING PERIOD WHERE DI18 MINISHED RISK OF LOSS; TREATMENT OF SHORT

19 SALES.— 

20 ‘‘(1) IN GENERAL.—If the taxpayer (or a re21 lated person) enters into any transaction which sub22 stantially reduces the risk of loss from holding any 

23 asset, such asset shall not be treated as an indexed 

24 asset for the period of such reduced risk. 

25 ‘‘(2) SHORT SALES.— 


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1 ‘‘(A) IN GENERAL.—In the case of a short 

2 sale of an indexed asset with a short sale period 

3 in excess of 3 years, for purposes of this title, 

4 the amount realized shall be an amount equal 

5 to the amount realized (determined without re6 gard to this paragraph) increased by the appli7 cable inflation adjustment. In applying sub8 section (c)(2) for purposes of the preceding sen9 tence, the date on which the property is sold 

10 short shall be treated as the date of acquisition 

11 and the closing date for the sale shall be treat12 ed as the date of disposition. 

13 ‘‘(B) SHORT SALE PERIOD.—For purposes 

14 of subparagraph (A), the short sale period be15 gins on the day that the property is sold and 

16 ends on the closing date for the sale. 

17 ‘‘(e) TREATMENT OF REGULATED INVESTMENT

18 COMPANIES AND REAL ESTATE INVESTMENT TRUSTS.— 

19 ‘‘(1) ADJUSTMENTS AT ENTITY LEVEL.— 

20 ‘‘(A) IN GENERAL.—Except as otherwise 

21 provided in this paragraph, the adjustment 

22 under subsection (a) shall be allowed to any 

23 qualified investment entity (including for pur24 poses of determining the earnings and profits of 

25 such entity). 


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1 ‘‘(B) EXCEPTION FOR CORPORATE SHARE2 HOLDERS.—Under regulations— 

3 ‘‘(i) in the case of a distribution by a 

4 qualified investment entity (directly or in5 directly) to a corporation— 

6 ‘‘(I) the determination of whether 

7 such distribution is a dividend shall be 

8 made without regard to this section, 

9 and 

10 ‘‘(II) the amount treated as gain 

11 by reason of the receipt of any capital 

12 gain dividend shall be increased by the 

13 percentage by which the entity’s net 

14 capital gain for the taxable year (de15 termined without regard to this sec16 tion) exceeds the entity’s net capital 

17 gain for such year determined with re18 gard to this section, and 

19 ‘‘(ii) there shall be other appropriate 

20 adjustments (including deemed distribu21 tions) so as to ensure that the benefits of 

22 this section are not allowed (directly or in23 directly) to corporate shareholders of quali24 fied investment entities. 


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1 For purposes of the preceding sentence, any 

2 amount includible in gross income under section 

3 852(b)(3)(D) shall be treated as a capital gain 

4 dividend and an S corporation shall not be 

5 treated as a corporation. 

6 ‘‘(C) EXCEPTION FOR QUALIFICATION

7 PURPOSES.—This section shall not apply for 

8 purposes of sections 851(b) and 856(c). 

9 ‘‘(D) EXCEPTION FOR CERTAIN TAXES IM10 POSED AT ENTITY LEVEL.— 

11 ‘‘(i) TAX ON FAILURE TO DISTRIBUTE

12 ENTIRE GAIN.—If any amount is subject to 

13 tax under section 852(b)(3)(A) for any 

14 taxable year, the amount on which tax is 

15 imposed under such section shall be in16 creased by the percentage determined 

17 under subparagraph (B)(i)(II). A similar 

18 rule shall apply in the case of any amount 

19 subject to tax under paragraph (2) or (3) 

20 of section 857(b) to the extent attributable 

21 to the excess of the net capital gain over 

22 the deduction for dividends paid deter23 mined with reference to capital gain divi24 dends only. The first sentence of this 

25 clause shall not apply to so much of the 


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1 amount subject to tax under section 

2 852(b)(3)(A) as is designated by the com3 pany under section 852(b)(3)(D). 

4 ‘‘(ii) OTHER TAXES.—This section 

5 shall not apply for purposes of determining 

6 the amount of any tax imposed by para7 graph (4), (5), or (6) of section 857(b). 

8 ‘‘(2) ADJUSTMENTS TO INTERESTS HELD IN

9 ENTITY.— 

10 ‘‘(A) REGULATED INVESTMENT COMPA11 NIES.—Stock in a regulated investment com12 pany (within the meaning of section 851) shall 

13 be an indexed asset for any calendar quarter in 

14 the same ratio as— 

15 ‘‘(i) the average of the fair market 

16 values of the indexed assets held by such 

17 company at the close of each month during 

18 such quarter, bears to 

19 ‘‘(ii) the average of the fair market 

20 values of all assets held by such company 

21 at the close of each such month. 

22 ‘‘(B) REAL ESTATE INVESTMENT

23 TRUSTS.—Stock in a real estate investment 

24 trust (within the meaning of section 856) shall 


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1 be an indexed asset for any calendar quarter in 

2 the same ratio as— 

3 ‘‘(i) the fair market value of the in4 dexed assets held by such trust at the close 

5 of such quarter, bears to 

6 ‘‘(ii) the fair market value of all as7 sets held by such trust at the close of such 

8 quarter. 

9 ‘‘(C) RATIO OF 80 PERCENT OR MORE.—If 

10 the ratio for any calendar quarter determined 

11 under subparagraph (A) or (B) would (but for 

12 this subparagraph) be 80 percent or more, such 

13 ratio for such quarter shall be 100 percent. 

14 ‘‘(D) RATIO OF 20 PERCENT OR LESS.—If 

15 the ratio for any calendar quarter determined 

16 under subparagraph (A) or (B) would (but for 

17 this subparagraph) be 20 percent or less, such 

18 ratio for such quarter shall be zero. 

19 ‘‘(E) LOOK-THRU OF PARTNERSHIPS.—For 

20 purposes of this paragraph, a qualified invest21 ment entity which holds a partnership interest 

22 shall be treated (in lieu of holding a partnership 

23 interest) as holding its proportionate share of 

24 the assets held by the partnership. 


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1 ‘‘(3) TREATMENT OF RETURN OF CAPITAL DIS2 TRIBUTIONS.—Except as otherwise provided by the 

3 Secretary, a distribution with respect to stock in a 

4 qualified investment entity which is not a dividend 

5 and which results in a reduction in the adjusted 

6 basis of such stock shall be treated as allocable to 

7 stock acquired by the taxpayer in the order in which 

8 such stock was acquired. 

9 ‘‘(4) QUALIFIED INVESTMENT ENTITY.—For 

10 purposes of this subsection, the term ‘qualified in11 vestment entity’ means— 

12 ‘‘(A) a regulated investment company 

13 (within the meaning of section 851), and 

14 ‘‘(B) a real estate investment trust (within 

15 the meaning of section 856). 

16 ‘‘(f) OTHER PASS-THRU ENTITIES.— 

17 ‘‘(1) PARTNERSHIPS.— 

18 ‘‘(A) IN GENERAL.—In the case of a part19 nership, the adjustment made under subsection 

20 (a) at the partnership level shall be passed 

21 through to the partners. 

22 ‘‘(B) SPECIAL RULE IN THE CASE OF SEC23 TION 754 ELECTIONS.—In the case of a transfer 

24 of an interest in a partnership with respect to 


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1 which the election provided in section 754 is in 

2 effect— 

3 ‘‘(i) the adjustment under section 

4 743(b)(1) shall, with respect to the trans5 feror partner, be treated as a sale of the 

6 partnership assets for purposes of applying 

7 this section, and 

8 ‘‘(ii) with respect to the transferee 

9 partner, the partnership’s holding period 

10 for purposes of this section in such assets 

11 shall be treated as beginning on the date 

12 of such adjustment. 

13 ‘‘(2) S CORPORATIONS.—In the case of an S 

14 corporation, the adjustment made under subsection 

15 (a) at the corporate level shall be passed through to 

16 the shareholders. This section shall not apply for 

17 purposes of determining the amount of any tax im18 posed by section 1374 or 1375. 

19 ‘‘(3) COMMON TRUST FUNDS.—In the case of a 

20 common trust fund, the adjustment made under sub21 section (a) at the trust level shall be passed through 

22 to the participants. 

23 ‘‘(4) INDEXING ADJUSTMENT DISREGARDED IN

24 DETERMINING LOSS ON SALE OF INTEREST IN ENTI25 TY.—Notwithstanding the preceding provisions of 


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1 this subsection, for purposes of determining the 

2 amount of any loss on a sale or exchange of an in3 terest in a partnership, S corporation, or common 

4 trust fund, the adjustment made under subsection 

5 (a) shall not be taken into account in determining 

6 the adjusted basis of such interest. 

7 ‘‘(g) DISPOSITIONS BETWEEN RELATED PERSONS.— 

8 ‘‘(1) IN GENERAL.—This section shall not apply 

9 to any sale or other disposition of property between 

10 related persons except to the extent that the basis 

11 of such property in the hands of the transferee is a 

12 substituted basis. 

13 ‘‘(2) RELATED PERSONS DEFINED.—For pur14 poses of this section, the term ‘related persons’ 

15 means— 

16 ‘‘(A) persons bearing a relationship set 

17 forth in section 267(b), and 

18 ‘‘(B) persons treated as single employer 

19 under subsection (b) or (c) of section 414. 

20 ‘‘(h) TRANSFERS TO INCREASE INDEXING ADJUST21 MENT.—If any person transfers cash, debt, or any other 

22 property to another person and the principal purpose of 

23 such transfer is to secure or increase an adjustment under 

24 subsection (a), the Secretary may disallow part or all of 

25 such adjustment or increase. 


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1 ‘‘(i) SPECIAL RULES.—For purposes of this section— 

2 ‘‘(1) TREATMENT OF IMPROVEMENTS, ETC.—If 

3 there is an addition to the adjusted basis of any tan4 gible property or of any stock in a corporation dur5 ing the taxable year by reason of an improvement to 

6 such property or a contribution to capital of such 

7 corporation— 

8 ‘‘(A) such addition shall never be taken 

9 into account under subsection (c)(1)(A) if the 

10 aggregate amount thereof during the taxable 

11 year with respect to such property or stock is 

12 less than $1,000, and 

13 ‘‘(B) such addition shall be treated as a 

14 separate asset acquired at the close of such tax15 able year if the aggregate amount thereof dur16 ing the taxable year with respect to such prop17 erty or stock is $1,000 or more. 

18 A rule similar to the rule of the preceding sentence 

19 shall apply to any other portion of an asset to the 

20 extent that separate treatment of such portion is ap21 propriate to carry out the purposes of this section. 

22 ‘‘(2) ASSETS WHICH ARE NOT INDEXED ASSETS

23 THROUGHOUT HOLDING PERIOD.—The applicable in24 flation adjustment shall be appropriately reduced for 


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1 periods during which the asset was not an indexed 

2 asset. 

3 ‘‘(3) TREATMENT OF CERTAIN DISTRIBU4 TIONS.—A distribution with respect to stock in a 

5 corporation which is not a dividend shall be treated 

6 as a disposition. 

7 ‘‘(4) SECTION CANNOT INCREASE ORDINARY

8 LOSS.—To the extent that (but for this paragraph) 

9 this section would create or increase a net ordinary 

10 loss to which section 1231(a)(2) applies or an ordi11 nary loss to which any other provision of this title 

12 applies, such provision shall not apply. The taxpayer 

13 shall be treated as having a long-term capital loss in 

14 an amount equal to the amount of the ordinary loss 

15 to which the preceding sentence applies. 

16 ‘‘(5) ACQUISITION DATE WHERE THERE HAS

17 BEEN PRIOR APPLICATION OF SUBSECTION (a)(1) 

18 WITH RESPECT TO THE TAXPAYER.—If there has 

19 been a prior application of subsection (a)(1) to an 

20 asset while such asset was held by the taxpayer, the 

21 date of acquisition of such asset by the taxpayer 

22 shall be treated as not earlier than the date of the 

23 most recent such prior application. 


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1 ‘‘(j) REGULATIONS.—The Secretary shall prescribe 

2 such regulations as may be necessary or appropriate to 

3 carry out the purposes of this section.’’. 

4 (b) CLERICAL AMENDMENT.—The table of sections 

5 for part II of subchapter O of chapter 1 of the Internal 

6 Revenue Code of 1986 is amended by striking the item 

7 relating to section 1023 and by inserting after the item 

8 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.’’. 

9 (c) EFFECTIVE DATE.—The amendments made by 

10 this section shall apply to indexed assets acquired by the 

11 taxpayer after December 31, 2023, in taxable years ending 

12 after such date. 

Æ 


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