Include non-Schedule-D capital gain distributions in gross income and net investment income#8839
Merged
Merged
Conversation
… NII non_sch_d_capital_gains (capital gain distributions reported on Form 1040 line 7 without Schedule D, PUF E01100) was populated in the enhanced CPS and referenced by the QDCGT worksheet (dwks09/dwks10), but never entered gross income or net investment income, so it was never taxed. Add it to gov.irs.gross_income.sources and gov.irs.investment.income.sources. On the 2026 enhanced CPS this raises federal income tax by $2.07B (incl. $0.10B NIIT) and state income tax by $0.42B via AGI conformity, across 4.0M tax units. Fixes PolicyEngine#8828 Co-Authored-By: Claude Opus 4.8 <noreply@anthropic.com>
Co-Authored-By: Claude Opus 4.8 <noreply@anthropic.com>
This was referenced Jul 2, 2026
Adding the distributions only to gross income taxed them at ordinary rates: capital_gains_tax and the taxable-income exclusion key off net_capital_gain, which did not include them, while the dwks worksheet that did feeds only the AMT comparison. Include them in net_capital_gain (long-term by IRC 852(b)(3)(B), no Schedule D netting on the line 7 path), pin ordinary-vs-preferential splits in the integration tests, and restate the 2026 revenue effect at $1.20B (8.8% effective rate on the $13.69B base), down from the $2.07B ordinary-rate figure. Co-Authored-By: Claude Fable 5 <noreply@anthropic.com>
Codecov Report✅ All modified and coverable lines are covered by tests. Additional details and impacted files@@ Coverage Diff @@
## main #8839 +/- ##
=========================================
Coverage 100.00% 100.00%
=========================================
Files 3 1 -2
Lines 55 17 -38
=========================================
- Hits 55 17 -38
Flags with carried forward coverage won't be shown. Click here to find out more. ☔ View full report in Codecov by Harness. 🚀 New features to boost your workflow:
|
This file contains hidden or bidirectional Unicode text that may be interpreted or compiled differently than what appears below. To review, open the file in an editor that reveals hidden Unicode characters.
Learn more about bidirectional Unicode characters
Sign up for free
to join this conversation on GitHub.
Already have an account?
Sign in to comment
1 participant
Add this suggestion to a batch that can be applied as a single commit.This suggestion is invalid because no changes were made to the code.Suggestions cannot be applied while the pull request is closed.Suggestions cannot be applied while viewing a subset of changes.Only one suggestion per line can be applied in a batch.Add this suggestion to a batch that can be applied as a single commit.Applying suggestions on deleted lines is not supported.You must change the existing code in this line in order to create a valid suggestion.Outdated suggestions cannot be applied.This suggestion has been applied or marked resolved.Suggestions cannot be applied from pending reviews.Suggestions cannot be applied on multi-line comments.Suggestions cannot be applied while the pull request is queued to merge.Suggestion cannot be applied right now. Please check back later.
Summary
non_sch_d_capital_gains(capital gain distributions reported without Schedule D, PUF E01100) in gross income, so they enter AGInet_capital_gain, socapital_gains_taxand the taxable-income exclusion tax them at preferential long-term rates (IRC 852(b)(3)(B)) rather than ordinary ratesFixes #8828
Revenue effect
Including the $13.69B of non-Schedule-D distributions raises 2026 federal income tax by $1.20B (8.8% dollar-weighted effective rate), consistent with preferential-rate treatment. An earlier revision that routed them only through gross income taxed them at ordinary rates and overstated this at $2.07B.
Tests
policyengine_us/tests/policy/baseline/gov/irs/integration/non_sch_d_capital_gains.yaml(6 cases including ordinary/preferential split pins)policyengine_us/tests/policy/baseline/gov/irs/irs_gross_income.yaml