Equal Tax Act
- Bill Number
- H.R. 5336
- Origin Chamber
- House
- Congress
- 119th Congress, Session 1
- Policy Area
- Taxation
- Status
- Introduced
- Latest Action
- 2025-09-11: Referred to the House Committee on Ways and Means.
- Last Updated
- 2026-06-24T08:09:45Z
AI-Generated Summary
Purpose of the Legislation
The Equal Tax Act (H.R. 5336) aims to reduce tax advantages for capital gains (profits from selling investments like stocks or property) and dividends (payments from company shares), treating them more like earned income (wages or salaries) for higher earners. It seeks to ensure wealthier individuals pay taxes on asset appreciation during lifetime transfers or at death, while providing limited relief for family farms and businesses and easing payment burdens in some cases.
Key Provisions
- Limiting Preferential Tax Rates (Section 2): Lower tax rates on long-term capital gains and qualified dividends apply only to taxable income up to $1,000,000 per year. Gains pushing income above this threshold are taxed at ordinary income rates (up to 37%). Gains from gifting or inheriting qualifying family farms or businesses are exempt from this limit.
- Deemed Sale of Assets at Gift or Death (Section 3): Assets transferred by gift or inheritance are treated as sold at their current fair market value (FMV), triggering capital gains tax on appreciation during the owner's lifetime. Exceptions include:
- Transfers to a spouse or spousal trust.
- Charitable donations.
- Small gifts (up to the annual gift tax exclusion, around $18,000 in 2025, adjusted for inflation).
- Certain personal items not used in business or investment.
Special rules apply to trusts, including deemed sales every 30 years for generation-skipping trusts and upon distributions. Basis (original cost for tax purposes) for recipients shifts to FMV at transfer, ending "step-up" basis at death for non-spousal transfers.
- Exclusion for Gains at Death (Section 4): Up to $1,000,000 of capital gains from assets deemed sold at death (inflation-adjusted after 2026) is excluded from income tax. For qualifying family farms or businesses (used as such for at least 3 of the last 5 years), an additional 50% of gains over $1,000,000 can be excluded if certified for continued use for 10 years. Recapture tax applies if the property is sold or use changes within 10 years (prorated monthly), unless due to hardship.
- Reporting Requirements (Section 5): Donors and executors must report details of gifts or bequests (name, property description, FMV, and basis) to the IRS and recipients if the transfer triggers tax under the new rules (excluding small gifts or certain securities).
- Installment Payments for Death-Related Taxes (Section 6): Tax on gains from assets deemed sold at death can be paid in up to 5 equal annual installments. Interest is reduced to 45% of the standard rate. Applies only to non-traded personal property; deficiencies (additional taxes owed) can be prorated, but not if due to fraud or negligence.
- Limits on Like-Kind Exchanges (Section 7): Under Section 1031 (allowing tax deferral on swapping similar properties), nonrecognition of gains is capped at $500,000 per year and $1,000,000 lifetime for non-qualified property. Qualified property includes farms or assets swapped for similar uses.
- Qualified Business Income Deduction Limits (Section 8): The 20% deduction for pass-through business income (e.g., from sole proprietorships or partnerships) applies only to taxable income up to $1,000,000. Above that, the deduction is reduced by non-business income.
All changes apply to tax years beginning after December 31, 2025, unless noted otherwise.
Significant Changes to Existing Law
- Ends the "step-up in basis" at death, where heirs inherit assets at current FMV without tax on prior gains (now, gains are taxed at transfer, with basis resetting to FMV).
- Eliminates unlimited tax deferral for gifts and most inheritances by treating them as taxable sales.
- Restricts favorable capital gains rates (0-20%) to lower earners, aligning them closer to ordinary rates for high earners.
- Caps like-kind exchange benefits and the business income deduction for higher incomes, reducing tax shelters for real estate and pass-through entities.
- Introduces new exclusions, reporting, and payment relief not previously available, but ties farm/business benefits to ongoing use certifications.
Potential Impacts
- On Government Agencies: The IRS will see increased revenue from taxing unrealized gains at transfer/death (potentially billions annually from wealthy estates) but added administrative burdens for reporting, certifications, and installment processing. May require new regulations for trusts and recapture enforcement.
- On Citizens: Higher taxes on investment income and asset transfers could affect wealth preservation, encouraging earlier sales or charitable giving. Middle-class families may benefit from exclusions and installment options; family farms/businesses get targeted relief but face recapture risks. Low earners (under $1M income) see minimal change.
- On International Relations: Minimal direct impact, though U.S. citizens abroad or foreign heirs may face new U.S. tax reporting on global assets, potentially complicating estate planning.
Main Stakeholders Affected
- High-Net-Worth Individuals and Families: Face higher taxes on gifts, inheritances, and investment income above $1M, reducing wealth transfer advantages.
- Family Farms and Small Businesses: Benefit from exclusions and basis rules but must certify continued operations to avoid recapture.
- Heirs and Spouses: Unlimited spousal transfers remain tax-free; others get FMV basis but pay on decedent's gains.
- Charities and Non-Profits: Easier tax-free transfers via donations.
- Investors and Real Estate Owners: Limited deferrals on exchanges and dividends; installment relief for estates.
- IRS and Taxpayers Generally: New compliance costs for reporting; potential revenue boost for federal budget.
Notable Legal, Constitutional, or Political Implications
- Legal: Aligns with IRS authority to regulate tax avoidance (e.g., via trust rules), but challenges may arise over retroactivity or vagueness in farm certifications. Builds on existing gift/estate tax frameworks without altering them directly.
- Constitutional: No clear violations; taxation of gains at transfer is permissible under Congress's power to levy income taxes (16th Amendment). Could face due process claims if seen as retroactive on lifetime appreciation.
- Political: Promotes tax equity by targeting "unearned" income, appealing to progressives, but may draw opposition from conservatives and business groups over reduced incentives for investment and estate planning. Inflation adjustments ensure long-term viability, but caps could fuel debates on wealth inequality.
This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.
Sponsor
Rep. Ramirez, Delia C. [D-IL-3]
Cosponsors (17)
Rep. Jayapal, Pramila [D-WA-7], Rep. García, Jesús G. "Chuy" [D-IL-4], Rep. Tlaib, Rashida [D-MI-12], Rep. Ansari, Yassamin [D-AZ-3], Rep. McCollum, Betty [D-MN-4], Rep. Thanedar, Shri [D-MI-13], Rep. Omar, Ilhan [D-MN-5], Rep. Deluzio, Christopher R. [D-PA-17], Rep. Watson Coleman, Bonnie [D-NJ-12], Rep. Schakowsky, Janice D. [D-IL-9], Rep. Casar, Greg [D-TX-35], Rep. Stansbury, Melanie A. [D-NM-1], Rep. Espaillat, Adriano [D-NY-13], Rep. McGovern, James P. [D-MA-2], Rep. Goldman, Daniel S. [D-NY-10], Del. Norton, Eleanor Holmes [D-DC-At Large], Rep. Mejia, Analilia [D-NJ-11]
Recent Actions
- 2025-09-11: Referred to the House Committee on Ways and Means.
- 2025-09-11: Introduced in House
- 2025-09-11: Introduced in House
Bill Versions
- Equal Tax Act — issued 2025-09-11 — PDF (23 pages)