Equal Tax Act

The bill limits the lower tax rates for long‑term capital gains and dividends so they only apply to the part of a taxpayer’s income up to $1,000,000 each year. Above that amount, capital gains and dividends would be taxed at the same rates as regular (earned) income. This income cap is calculated after including all other taxable income, and it does not count gains from certain transfers of qualifying family farms or family businesses. The bill creates a new rule that treats most transfers of property by gift or at death as if the property were sold at fair market value on that date. This means unrealized capital gains would be “realized” and subject to tax when assets are given away or inherited, instead of waiting until the recipient later sells them. There are exceptions for transfers to a spouse or a qualifying spousal trust, transfers to charities, and for some personal items that are not used in a business, investment, or collectibles. Special rules apply to trusts. For some grantor trusts, a taxable deemed sale happens when the grantor stops being treated as the owner or when the property is no longer part of the grantor’s estate. For other trusts, a deemed sale happens when property is first placed into the trust, and again every 30 years for long‑lasting (generation‑skipping) trusts. The Treasury Secretary is directed to write regulations so that changing or moving trust assets cannot be used to avoid these new rules. The bill changes basis rules so that, for gifts made after 2026, the recipient’s tax basis becomes the asset’s fair market value at the time of the gift, instead of the donor’s old basis. For property received from a decedent, basis still generally steps up to fair market value, but it cannot exceed the amount that was treated as sold and taxed under the new deemed realization rule. Similar consistency rules apply for gifted property, and special coordination rules apply to property transferred between spouses or to surviving spouses. To reduce the impact at death, the bill excludes from income up to $1,000,000 of net capital gains realized at death under the new rules. For qualifying family farms and family businesses that meet a 10‑year continued‑use certification, 50% of any additional gain above $1,000,000 is also excluded from income. The $1,000,000 thresholds are indexed for inflation going forward, and there are recapture rules: if the farm or business use stops or the property is transferred in ways that do not keep the required use, part of the previously excluded gain is brought back into tax. The bill requires new information reporting to the IRS for certain taxable gifts and bequests. The person making the gift, or the executor for transfers at death, must report the recipient’s name and taxpayer ID, describe the property, and state its fair market value and basis to the recipient when the transfer is an “applicable transfer” under the new deemed sale rules. Recipients must also receive a statement with this information. To help with large tax bills at death, the bill lets taxpayers elect to pay the tax on gains realized by reason of death on certain non‑traded assets in up to five annual installments. Interest is charged at a reduced rate (45% of the normal rate) on the deferred tax. The IRS can require security, and deficiency and statute‑of‑limitations rules are adjusted to match the new installment schedule. The bill limits how much gain can be deferred using like‑kind exchanges of real estate that is not “qualified property.” A taxpayer can only defer up to $500,000 of gain per year, with a lifetime cap of $1,000,000, on property that is not used for farming or exchanged into property serving the same specific purpose. Finally, it limits the section 199A qualified business income deduction so that it applies only to the first $1,000,000 of a taxpayer’s taxable income, and it changes the comparison amount so that it is measured against all non‑business income rather than only net capital gains.