. – On Wednesday, Rep. Ralph Norman (SC-05) introduced H.R. 9524, the Capital Loss Inflation Fairness Act, which would increase the capital loss limit against ordinary income from $3,000 to $13,000 for individuals and those married filed jointly. Additionally, H.R. 9524 includes an annual adjustment for inflation.
The Capital Loss Inflation Fairness Act enjoys support from National Taxpayers Union and Heritage Action.
Under current income tax law, individuals pay capital gains tax when assets, such as property or stocks, are sold at a profit. Individuals may claim a capital loss deduction when assets are sold at a loss. The capital losses a taxpayer may deduct in a particular year are limited to the amount of gains taxed in that year, plus $3,000. Long-term and short-term losses are netted against their respective gains, and then used against each other. Should any net loss remain, it can offset up to $3,000 of ordinary income each year. Net losses exceeding the $3,000 limit may be carried forward indefinitely and deducted in future years (subject to the limit.)
The limit is not automatically adjusted for inflation and has remained unchanged since 1978 despite drastic changes in nominal prices. Adjusting the limit to reflect inflation since 1978 would result in an increase to about $13,000.
H.R. 9524 corrects the disparity by increasing the outdated capital loss limit against ordinary income from $3,000 to $13,000 and adjusts for future inflation.
“Prices have increased exponentially in 44 years – as a comparison, we were paying around 78 cents for a gallon of gas in 1978,” Rep. Ralph Norman said in a statement on Wednesday. “This is well overdue, small modernization of the tax code that I believe will have a big impact restoring investor confidence in these uncertain times.”
"For many years, NTU's founder warned Congress about the shortcomings of capital loss limitations in the tax code. Congressman Ralph Norman deserves great credit and thanks for tackling a lesser-mentioned area of the tax code that can have a terrible impact on taxpayers and investors, especially when broad investment indices are down. Mobility of capital is one key ingredient to a healthy economy, and Congress must re-examine tax and regulatory policies that impede such mobility. That's why NTU is proud to endorse the Capital Loss Inflation Fairness Act." said Pete Sepp, President, National Taxpayers Union.