Wealth tax mark-to-market expansion

Full Title:
Billionaires Income Tax Act

Summary#

This bill would require very wealthy people, certain large trusts, and some pass‑through entities to pay U.S. tax each year on gains in many of their investments. It does this mainly by applying a mark‑to‑market rule (treating certain assets as if sold at fair market value at year‑end) and by treating many transfers (gifts, death, and some exchanges) as taxable events. The stated goal is to stop strategies often called “buy, borrow, die” that let the ultra‑wealthy avoid paying tax on appreciation for long periods.

  • Who is targeted: Individuals with very high income (AGI over $100 million) or very large asset holdings (assets over $1 billion) for 3 years in a row, plus certain trusts, estates, and entities tied to those taxpayers.
  • Annual mark‑to‑market: Tradable assets held by these “applicable taxpayers” are treated as if sold at year‑end so gains or losses must be reported each year.
  • Tax on transfers: Many transfers of non‑tradable assets (including gifts and transfers at death) would trigger recognition of gains. A special “deferral recapture” calculation applies to non‑tradable assets to collect tax on past appreciation with interest.
  • Other changes: The bill limits use of like‑kind exchange and other nonrecognition rules for affected entities, adds reporting rules for deferred compensation and private placement life insurance, changes treatment of qualified opportunity funds and the small‑business stock exclusion for applicable taxpayers, and adds special rules for expatriates.
  • Timing: Most rules apply to taxable years beginning after December 31, 2025; some changes to special investment elections apply to sales or exchanges after September 17, 2025.

What it means for you#

  • Very wealthy individuals and their families (applicable taxpayers):

    • If you meet the income or asset tests for three prior years, year‑end gains on tradable investments will be taxed even if you did not sell.
    • Transfers of private or hard‑to‑value assets (gifts, placing in trust, or at death) will generally trigger tax on unrealized gains. A special calculation adds interest (the “deferral recapture amount”) on the tax that would have been owed in earlier years.
    • For the first year you become subject, you may be able to elect to recognize and pay tax on existing nontradable assets and to pay the initial tax in up to five annual installments (with rules that can accelerate payments).
    • Certain tax breaks for very long‑held investments are narrowed or lost (for example, the exclusion for qualified small business stock and some benefits of qualified opportunity funds for applicable taxpayers).

  • Owners of pass‑through businesses (partnerships, S corps) and significant owners:

    • If a significant owner is an applicable taxpayer, the entity must report gains and holding periods to that owner. The owner must include its share of gain or loss for taxable events in the entity.
    • Some nonrecognition rules (like one for contributions/exchanges for stock) will not apply when an applicable entity or a significant owner is involved.

  • Trusts and estates:

    • Trusts that meet the income or asset thresholds become “applicable trusts” and face the same year‑end and transfer recognition rules.
    • Transfers into or out of many grantor trusts and distributions from certain trusts trigger tax recognition.

  • Recipients of large deferred compensation or private placement insurance/annuities:

    • New reporting is required for payments over specified thresholds (initially $5,000,000, indexed later).
    • Some life insurance or annuity payouts tied to applicable taxpayers would be taxable in different ways and could lose the usual tax exclusion for death benefits in private placement contracts.

  • Expatriates:

    • Covered expatriates who are applicable taxpayers face special rules that treat them as taxable on certain sales and over an extended 10‑year period.

  • Investors and small businesses:

    • Applicable taxpayers would lose the Section 1202 exclusion for qualified small business stock acquired on or after Sept. 17, 2025.
    • Rules for qualified opportunity funds are tightened for applicable taxpayers and entities.

  • What is unclear:

    • The bill gives the Treasury broad authority to write detailed rules and valuations. How those rules will work in practice for complex private assets is not spelled out in the bill text.

Expenses#

No publicly available information.

  • The bill itself does not include a fiscal note in the supplied material.
  • Likely new costs (inferred from the text): increased IRS administrative and enforcement costs to handle annual mark‑to‑market reporting, valuation rules, and new information returns.
  • Likely private costs: taxpayers and their advisers would face valuation, compliance, and record‑keeping expenses (especially to value non‑tradable assets and meet entity reporting rules).
  • Some transitional cash‑flow effects for taxpayers: initial year tax liabilities may be payable in installments, but taxes on unrealized gains could cause liquidity needs.
  • The bill creates many new reporting and penalty provisions that will require both government systems and private compliance work.

Proponents' View#

The bill’s purpose and text explain the main reasons for the changes. The following summarizes what the bill appears intended to do and the benefits supporters may claim:

  • The bill appears intended to require billionaires to pay tax on annual increases in the value of their assets, similar to how wage income is taxed each year.
  • It aims to close the “buy, borrow, die” strategy where taxpayers hold appreciated assets, borrow against them, and pass assets to heirs without recognizing gains.
  • The mark‑to‑market approach would make ultra‑wealthy taxpayers report and pay tax on unrealized appreciation each year.
  • By applying the rules to trusts, estates, and entities tied to applicable taxpayers, the bill seeks to prevent shifting assets through those vehicles to avoid tax.
  • Increased reporting for large deferred compensation and private placement contracts is intended to make large payouts transparent and taxable.

Opponents' View#

The bill’s design raises several practical questions and possible trade‑offs that could concern lawmakers, administrators, or taxpayers:

  • One concern is valuation difficulty. The bill requires annual fair‑market values for many private, nontradable, or complex assets. It does not set exact valuation methods; the Treasury must write rules. That could be hard to apply and dispute.
  • One concern is liquidity and cash flow. Taxing unrealized gains forces payment when assets have not been sold. For owners of private businesses or real assets, that can create real cash needs or pressure to sell.
  • The bill would add significant compliance and administrative burdens for taxpayers, pass‑through entities, trusts, and the IRS. The scale of those costs is not estimated in the text.
  • One concern is complexity and potential double taxation. The deferral recapture calculations, interest additions, and coordination with other tax rules create complex interactions that may be difficult to administer and understand.
  • The bill reduces or limits tax incentives for some long‑term investments (like the small business stock exclusion and opportunity fund rules for applicable taxpayers). This could change decisions about investing in startups or community projects—how much is unclear.
  • The bill relies heavily on future Treasury regulations to prevent avoidance. The exact scope and rules depend on those future regulations, which are not part of the bill text.