Very wealthy borrowers would face taxes on unsold investment gains

Covered borrowers would report gains on investments they choose as if those investments were sold at year-end. The investments must have been held for more than one year, with gains totaling at least the loan amount. Long-term investment losses, including carried-forward losses, could not offset these gains. Borrowers could increase an investment's purchase cost for later tax calculations by the gain recognized, up to market value. Property eligible for depreciation would not receive this adjustment. For nonresident foreigners, only investments connected to a U.S. business would count. Certain excluded foreign earnings would reduce the amount covered. The rules would apply to tax years beginning after December 31, 2026. Gains would count in the loan's issue year, with a separate rule for older loans.

Individuals would generally enter the system by meeting either the income test or the asset test in each of the three preceding tax years. These are the standard entry tests for individuals other than nonresident foreigners. Married people filing separately would face half the usual dollar thresholds. The three-year lookback could include years before enactment.

Covered taxpayers would treat property leases lasting more than five years as loans. This rule would apply to taxpayers covered by the loan-tax rules. The property's market value at year-end would count as the loan amount. An extension or a later lease of substantially identical property would add to the original lease's length. The rule would apply to tax years beginning after December 31, 2026. When combined lease terms exceed five years, the extension or later lease would set the tax year used.

The loan-tax rules would count unpaid older loans and assign certain business loans to owners according to their ownership shares. The business rule would cover partnerships, S corporations, and other designated businesses whose income passes through to owners for tax purposes. Only shares assigned to covered taxpayers would trigger the loan-tax rule. Business leases would count under this owner-sharing rule only if they violated the tax rule requiring transactions to have real economic substance. Principal unpaid at enactment would count as one loan issued January 1, 2027. Businesses would notify owners within 30 days after a loan was issued.