S 4122: Equal Tax Act - United States

S 4122 – Equal Tax Act

Introduced: 17 March 2026, Senate (Markey, Sanders, Merkley, Booker)

Status: Introduced, read twice, and referred to the Committee on Finance

Primary Sponsor: Senator Edward J. Markey (with Senator Cory Booker, Jeff Merkley, Bernie Sanders)

Purpose & Intent

The bill seeks to equalize the federal tax treatment of capital gains with earned income and to provide targeted relief to family farms, certain qualified business assets, and to streamline reporting for gifts and inheritances. It aims to:

Reduce the tax advantage of capital gains relative to ordinary wages.
Simplify transfer‑of‑property rules at death or through gift, treating transfers as “sales” at fair‑market value.
Protect family farms by excluding a substantial portion of death‑related gains from taxable income.
Offer installment payment options for heirs who must pay tax on inherited gains.

Key Provisions

Area	What the bill changes
Capital‑gain treatment	Section 1(h) limits the amount of gain that can be excluded from taxable income to the lesser of $1 million or the amount that keeps taxable income ≤ $1 million.
Basis rules for gifts / deaths	A new §1261 makes a gift or death transfer “treated as sold” at fair‑market value for basis purposes, with multiple carve‑outs (spouses, qualifying trusts, certain tangible personal property).
Family‑farm & business exclusion	New §139M allows a qualifying family farm or business to exclude part of gains: <0.5 × $1 million, with 50 % excise for amounts above $1 million, plus recapture rules and certification requirements.
Reporting requirements	§6050BB mandates that the giver or executor of a qualifying transfer furnish: name, identification, description, FMV, and basis of the transferred property.
Installment payment for inherited gains	§6168 lets heirs elect up to five equal installments to pay the tax on gains recognized under §1261.
Other adjustments	• New limits on §1031 gain exclusion (max $500 k per year, $1 million aggregate). • §199A modifications replace taxable‑income and “net capital gain” with capped amounts (≤ $1 million) and adjust qualifying income.
Effective dates	All changes apply to taxable years beginning after December 31, 2026, with most reporting and installment provisions also taking effect on the same date.

Parties Affected

Individuals with capital gains, gifts, or inheritances involving real or personal property (especially family farms, real estate, and certain business assets).
Trusts that hold transferred assets, trusts that may be treated as gifts.
Tax preparers / CPAs needing to apply new basis rules, reporting deadlines, and installment calculations.
Farm owners / family businesses that qualify for §139M exclusion and recapture treatment.

Procedural Notes

The bill is currently in committee; no vote has taken place.
If enacted, the changes operate retroactively for tax years after 2026 only; no immediate impact on current returns.
The companion House bill, HR 5336, mirrors many provisions—legislative coordination may be required.

Bottom Line

S 4122 aims to make capital‑gain taxation more “pro‑livelihood” by capping its tax advantage over regular income, meanwhile easing the administrative burden for gifts and inheritances and protecting family farms from excessive tax exposure. The biggest immediate effect will be on taxpayers who own significant appreciated properties, whether sold, gifted, or inherited, and who are subject to the new 1‑million‑dollar cap and reporting obligations.

Equal Tax Act