Senate Pushes to Index Capital Gains to Inflation in 2026

Republican senators Ted Cruz of Texas and Tim Scott of South Carolina sent a letter to Treasury Secretary Scott Bessent in early March 2026, urging him to index capital gains to inflation without an act of Congress. House Republicans, led by Congressional Real Estate Caucus Co-Chair Mark Alford of Missouri, followed with a parallel letter days later. The push revives a decades-old fight, and it now lands at an administration the senators are explicitly asking to act by regulation.

Indexing would change the basic math of the capital gains tax. Under current law, a gain is the sale price minus the original cost basis, so any appreciation, including the part that just reflects a weaker dollar, is taxed. Indexing lifts the basis by an inflation factor before the tax is calculated, leaving only the real, inflation-adjusted gain on the table. The change is technical, but the political and budget stakes are not: the cost runs $170 billion to $1.1 trillion over a decade, depending on whether it applies only to new purchases or to assets already held.

What Cruz and Scott Are Asking Bessent to Do

Under the Cruz-Scott letter, Treasury would redefine the word “cost” in the tax code to mean inflation-adjusted cost, then apply that to every sale of a capital asset. Stocks, bonds, real estate, and digital assets would all be covered. Cruz has pressed the same idea legislatively since 2018, most recently as the Capital Gains Inflation Relief Act of 2025 (S. 798), which sits in the Senate Finance Committee without a floor vote.

That bill would use the gross domestic product price deflator as the inflation series, a broad measure of prices for goods and services produced in the United States with imports excluded. Cruz’s Capital Gains Inflation Relief Act of 2025 applies the change to stocks, bonds, real estate, and digital assets held by individual taxpayers. The Cruz-Scott letter, mirrored in the March 2026 letter House Republicans sent to Bessent, is the regulatory version of the same idea: instead of a floor vote, the senators want Bessent to redefine “cost” in a Treasury regulation. Three prior administrations, under George H.W. Bush, the first Trump term, and earlier reviews, looked at administrative indexing and either walked away or, in the case of Treasury Secretary Steven Mnuchin in 2019, deferred to Congress.

The Home-Sale Exclusion, Frozen at 1997 Levels

Today’s housing tax math rests on a single line in the tax code: the Section 121 home-sale exclusion lets single filers shield up to $250,000 of gain, and married couples filing jointly up to $500,000, provided they meet the ownership and use tests. Those caps have not moved since 1997, even as home prices, wages, and the broader cost of living have risen sharply. The rules for excluding home-sale gains from tax confirm the thresholds remain unchanged.

Indexing would leave the dollar caps alone but adjust the underlying basis upward for inflation before the gain is calculated, shrinking the slice that flows into tax. For a seller whose gain is below the cap, the result is the same: zero tax. For sellers above the cap, the indexing adjustment reduces the dollar amount that actually gets taxed, in some cases by tens of thousands of dollars. The longer the holding period and the higher the inflation that accumulated during it, the larger the adjustment.

The mechanic is the same for stocks, bonds, and other capital assets: redefine “cost” to mean inflation-adjusted cost, then subtract from the sale price. Cruz’s bill uses the gross domestic product price deflator, a broad measure that captures the prices of goods and services produced in the United States, with import prices excluded. Import exclusion tends to produce a smaller adjustment than the consumer-focused CPI would yield, so the bill’s choice of deflator is a deliberate one. A worked example: an asset bought for $2,000 and sold for $6,000 would generate a $4,000 gain today and a $3,000 gain under indexing, if inflation added $1,000 to the basis. The actual impact on any given homeowner depends on the purchase year, sale price, documented improvements, and the chosen inflation series.

Who Would Actually Benefit

The seller’s-side case is strongest in markets where long-time owners have watched home values climb into the seven figures. The National Association of REALTORS puts the number at 29 million homeowners today, or 34 percent of all owners, who already face a potential capital gains tax if they sell. By 2030, NAR projects the share could rise to 56 percent, and by 2035 to nearly 70 percent of homeowners above the $250,000 cap, as price growth continues. Most of those owners are middle-class households sitting on paper gains built up over decades, not the buyers of trophy properties.

But the Brookings Institution estimates that 95 percent of households owe no federal capital gains tax on a home sale under current law, even before any indexing change. That is the wrinkle: the $250,000 and $500,000 exclusion is doing most of the work for the typical seller, and indexing does not change that. The biggest beneficiaries of indexing would be the smaller group whose gains exceed the cap, owners of second homes and rental properties (which do not qualify for the Section 121 exclusion at all), and long-horizon investors. A second, smaller group is households above the cap who have not yet sold. The National Association of REALTORS, which has long backed indexing and the parallel More Homes on the Market Act, framed the case this way:

Building equity shouldn’t come with a penalty; it should come with opportunity.

Shannon McGahn is the executive vice president and chief advocacy officer at the trade group, and she tied the position to the broader wealth gap between owners and renters. The lock-in effect is the housing policy argument Cruz and the realtors’ trade group are making: homeowners hesitate to sell because doing so could trigger a large tax bill, and that hesitation shrinks the inventory of homes for sale. Lower expected taxes on a sale would, in theory, free up some of that inventory, especially in coastal markets where appreciation has been steep. Whether the second-home and rental property owners who would benefit most from indexing are the same people frozen out of a move is a different question, and the data is thin. Either way, indexing treats the cap and the basis as a single policy question, even though adjusting the cap alone is the simpler legislative fix Congress has not taken.

The Cost: $170 Billion or $1.1 Trillion, Skewed to the Top

The price tag depends on how broad the change is. The Budget Lab at Yale puts the ten-year cost at $170 billion if indexing applied only to new asset purchases, and $1.1 trillion if it applied retroactively to assets already held. The Institute on Taxation and Economic Policy estimates the decade cost at nearly $1 trillion, with the assumption that some retroactive relief would be included.

The distribution is the harder political fact. The Budget Lab concludes the policy is regressive: the top 0.1 percent of households by income would see an average tax cut of about $350,000, while the bottom two quintiles would see no benefit at all. The Tax Policy Center notes that capital gains already receive preferential tax treatment worth more than $225 billion per year, partly on the rationale that some portion of those gains is really inflation. Indexing on top of that preference would compensate for inflation twice, for an already favored asset class.

A second-order distortion worries analysts across the ideological spectrum. If indexing applies to capital gains but not to the interest deduction, an investor who borrows at a nominal rate and invests in an asset whose only real gain is taxed creates an artificial tax loss, even on a deal that produces no real profit. The comprehensive fix, indexing the entire tax system, including interest income, interest deductibility, and depreciation, has been laid out in academic work since at least 1993 but never seriously pursued by any administration. The Tax Policy Center calls that asymmetry the reason most analysts of every stripe are skeptical of partial indexing. Cruz and Scott have called the regulatory version of the proposal “the single most pro-growth economic action the administration can take unilaterally,” while the Institute on Taxation and Economic Policy frames the same policy as a tax cut for the richest 1 percent that would add nearly $1 trillion to the deficit.

The distributional picture extends to housing. Long-time owners in high-cost markets would benefit, second-home owners and small landlords would benefit, and the top 1 percent of households would get most of the dollar value. Households below the $250,000 cap, which is the majority of sellers, would see no change in their tax bill. They would absorb the cost in some form, since federal revenue has to come from somewhere. The mortgage interest deduction, which 12 million households rely on, would, in a fully consistent indexing regime, have to be inflation-adjusted too, a trade few in housing policy have welcomed.

• $170 billion: Budget Lab ten-year cost, new purchases only
• $1.1 trillion: Budget Lab ten-year cost, retroactive to existing holdings
• Nearly $1 trillion: ITEP estimate, ten-year deficit increase
• $350,000: average tax cut for the top 0.1 percent of households
• 95 percent: share of households that owe no capital gains tax on a home sale today
• $225 billion: annual value of the existing capital gains preferential rate

Why the Legal Path Looks Narrow

The legal question is whether Treasury can make the change on its own, which is the path Cruz, Scott, and the House Republicans are pressing Bessent to take. The Internal Revenue Code states plainly that the basis of property is its cost, and a 1992 Justice Department memo concluded that Treasury lacks the authority to redefine “cost” as inflation-adjusted cost. The 1992 memo on Treasury’s indexing authority has been the standing answer for three decades. Three administrations have looked at the question and either walked away or, in the case of Treasury Secretary Steven Mnuchin in 2019, deferred to Congress.

Then-Attorney General William Barr was blunt about the limits of executive action. The legal environment has not gotten friendlier since. The 2024 Supreme Court decision in Loper Bright Enterprises v. Raimondo overturned the Chevron doctrine, the precedent that had let courts defer to an agency’s reasonable interpretation of an ambiguous statute.

Without Chevron, a Treasury regulation that stretched the word “cost” to mean inflation-adjusted cost would face a court that no longer has to defer to Treasury’s reading. Tax scholars across the ideological spectrum now treat unilateral indexing as legally shaky. The Institute on Taxation and Economic Policy also flagged a separate, procedural risk: if Treasury does issue a regulation, it is unclear whether any plaintiff would have standing to challenge it in court, since the regulation cuts taxes rather than raising them. An interactive capital gains indexing calculator from the Bipartisan Policy Center walks through how a chained-CPI version of the policy would shift the tax bill, with the caveat that the legal path is unresolved. Then-Attorney General William Barr put it this way:

The question of whether the executive branch could index capital gains through administrative action was “clear,” and he didn’t “think that a reasonable argument could be made to support that position.”

What Homeowners and Investors Should Do Now

Until Treasury signals a response or Congress moves a bill, the current capital gains treatment is the only one that applies, which makes the cost basis on paper the only thing a seller can actually move. Buyers and long-time owners should treat the next few months as a record-keeping project: locate the original purchase contract, the closing statement, and every receipt for capital improvements. A higher documented basis lowers the taxable gain even under the existing $250,000 and $500,000 exclusion, and it would matter more if indexing arrives. For households planning a sale in the next year, the timing decision should be made with a tax professional who can model the basis under both regimes.

The lock-in effect is real for households above the cap, and it is the reason Cruz and the National Association of REALTORS keep raising the proposal. The legal authority question is the open variable, and Treasury has not publicly committed to acting. As of June 2026, no Treasury response to the March 2026 letter has been reported and the bill is still in committee.

Frequently Asked Questions

What does “capital gains indexed to inflation” mean?

It is a technical change to the tax code that adjusts an asset’s original purchase price for inflation before the taxable gain is calculated. Under current law, the capital gains tax applies to the nominal difference between the purchase and sale prices. Indexing would raise the basis to match the inflation that accumulated during the holding period, so the tax falls only on the portion of the gain above inflation. The change would apply to stocks, real estate, and other capital assets, including homes.

Who would benefit most from indexing capital gains?

Long-time owners in high-cost markets who exceed the $250,000 home-sale exclusion, owners of second homes and rental properties (which do not qualify for the Section 121 exclusion at all), and investors holding assets for many years. The Budget Lab at Yale estimates the policy would deliver average savings of roughly $350,000 to households in the top 0.1 percent of income, with no benefit to the bottom two quintiles. The dollar value of the cut scales with both income and the size of the gain, which is why the distributional analysis matters as much as the headline number.

Is indexing capital gains to inflation law yet?

No. It is a proposal that Republican senators have urged Treasury Secretary Scott Bessent to adopt by regulation, and that Sen. Ted Cruz has introduced as the Capital Gains Inflation Relief Act of 2025 (S. 798) in Congress. The Department of Justice concluded in 1992 that Treasury lacks the authority to make the change unilaterally. The Supreme Court’s 2024 decision in Loper Bright v. Raimondo, which overturned the Chevron doctrine, has only strengthened that legal view. As of June 2026, no Treasury action has been reported and no bill has reached a floor vote.

How much would indexing capital gains to inflation cost?

The Budget Lab at Yale puts the ten-year revenue loss at $170 billion if indexing only covers new asset purchases, and at $1.1 trillion if it also covers assets acquired before the change takes effect. The Institute on Taxation and Economic Policy projects a similar cost, estimating the decade hit at nearly $1 trillion under a mix of prospective and retroactive treatment. Both groups agree the largest dollar gains would flow to households in the top 1 percent of the income distribution.

What should homeowners and investors do now?

Pull together every document that supports your cost basis: the original purchase contract, the closing statement, and any receipts for capital improvements. A higher documented basis shrinks the taxable gain under the current rules, and it would matter even more if Congress or Treasury adopts indexing. If a sale is on the horizon, run the numbers with a tax professional who can model the basis under both regimes. Timing the completion of any planned improvements so the receipts are in hand can also raise the basis before the sale closes.

Disclaimer: This article is for informational purposes only and does not constitute tax or legal advice. Tax laws change frequently, and individual situations vary. Consult a qualified tax professional or attorney before making decisions based on the information in this article. Figures and policy details are accurate as of the publication date.

The push to index capital gains to inflation has been around for decades, and three administrations have studied it and walked away. As of June 2026, the question sits with Treasury Secretary Bessent and with Congress, and the policy’s fate depends on a legal argument most tax law experts read as weak and a cost the federal budget would absorb over a decade. Homeowners above the $250,000 exclusion would see the largest dollar change, and they have the most reason to keep their records in order.