H.R. 5336 — Equal Tax Act

This section limits preferential tax rates on qualified dividends and net capital gains under IRC §1(h) to so much of such gain as does not cause a taxpayer's taxable income to exceed $1 million (computed after other taxable income). It excludes from this limitation gain from gifts or bequests of qualifying family farms or businesses described in IRC §139J(c). The amendments apply to taxable years beginning after December 31, 2025.

This section establishes under new IRC §1261 a rule requiring recognition of capital gain (or loss) on any appreciated (or depreciated) property transferred by gift or at death, treating such property as sold for fair market value on the date of the gift or death. Exceptions include transfers to a spouse or surviving spouse (or qualified spousal trust); charitable contributions; small gifts not exceeding the annual exclusion amount under IRC §2503(b) (currently $18,000 per donee); and tangible personal property other than that held for business, investment, or as collectibles. The section specifies trust rules triggering gain recognition, including for grantor trusts upon the grantor's ceasing to be owner or the property ceasing to be includible in the grantor's estate; other trusts upon transfer into the trust; generation-skipping trusts every 30 years of continuous holding; qualifying spousal trusts upon the spouse beneficiary's death, non-spousal distributions, or cessation as a qualifying trust; and regulatory authority over trust modifications or distributions to prevent avoidance. This section further (1) amends IRC §267 to exempt property treated as sold at death under §1261 from related-party loss disallowance rules; (2) revises IRC §1015 gift basis rules to provide fair market value basis at the time of the gift for gifts after December 31, 2025 (from donor's carryover basis); and (3) amends IRC §1041 spousal transfer rules to apply carryover of the transferor's adjusted basis—including for transfers at death—and makes conforming changes to IRC §1014. (Thus, the provision effectively eliminates the step-up in basis at death for non-spousal heirs while preserving carryover basis for spouses.)

This section establishes a new exclusion from gross income (IRC §139J) for net capital gain from transfers of appreciated assets at death to which IRC §1261(a) applies, for taxable years beginning after December 31, 2025. The exclusion covers (1) up to $1 million of such gain ($1 million indexed for inflation after 2026 using 2025 as base year, rounded down to nearest $10,000); and (2) for certified qualifying family farms or businesses (i.e., U.S. real property used in farming or as a family business for 3 or more years in the 5-year period ending on the date of bequest, with certification of continued use for 120 months), 50% of gain exceeding $1 million. (Thus, heirs recognize no income on the first $1 million of gain and half the excess for qualified property, subject to rules similar to the home sale exclusion (IRC §121) and special use valuation recapture (IRC §2032A).) A prorated recapture tax applies upon disposition, cessation of qualifying use, or change in ownership within 120 months (unless successor assumes liability), with no credits allowed against the recapture and hardship exceptions determined by the Secretary.

This section establishes new IRC §6050Z requiring the donor (for gifts) or executor (for transfers at death) of an applicable transfer—defined as a gift or transfer at death, excluding covered securities (i.e., as defined in IRC §6045(g)(3)), taken into account under §1261 (and, for deaths, with gain includible in gross income)—to report to the IRS and transferee the recipient's name and taxpayer identification number, a description of the property transferred, its fair market value, and the basis to the transferee. The provision applies to transfers after December 31, 2025, with timing, form, and manner prescribed by IRS regulations.

This section establishes new IRC §6168, allowing a taxpayer to elect to pay in up to 5 equal annual installments the portion of income tax attributable to gain recognized under IRC §1261 (i.e., acceleration of deferred ordinary income recapture from certain installment sales of depreciable property) due to the taxpayer's death with respect to eligible property (i.e., any property other than actively traded personal property). (Thus, the first installment is due with the tax return for the year of death, with interest accruing at 45% of the normal underpayment rate under new IRC §6601(k); deficiencies are prorated to installments, subject to exceptions for negligence or fraud.) The section also coordinates transferee liability assessment periods under IRC §6109(g) and makes conforming amendments to IRC §§6601 and the table of sections for subchapter B of chapter 62. The changes apply to taxable years beginning after December 31, 2025.

This section limits nonrecognition of gain from like-kind exchanges of real property by capping exclusions at $500,000 annually and $1 million in the aggregate for non-qualified property, effective for exchanges after December 31, 2025. Qualified property includes real property used for farming purposes or exchanged for property serving the same specific purpose. (Like-kind exchanges under IRC §1031 allow taxpayers to defer capital gains taxes by exchanging similar properties.)

This section amends the taxable income limitation on the qualified business income deduction by (1) limiting the relevant taxable income to so much thereof as does not exceed $1,000,000 (from all taxable income), and (2) subtracting all income other than qualified business income (from net capital gain). The changes apply to taxable years beginning after December 31, 2025.