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The Tax Foundation is the nation’s
leading independent tax policy
research organization. Since 1937,
our research, analysis, and experts
have informed smarter tax policy
at the federal, state, and global
levels. We are a 501(c)(3) nonprofit
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Looking Back on Taxation of Capital Gains
• A lookback charge is in addition to traditional income taxes due on the
realization of a capital gain.
In an ideal setting, the lookback charge eliminates the benefit of deferral
and removes the “lock-in” effect, a design flaw in the current system of
realization-based taxation of capital gains.
• Taxing capital gains with a lookback charge does have several advantages
over mark-to-market taxation, such as preserving liquidity for taxpayers and
eliminating valuation challenges for hard-to-value assets.
• However, a lookback charge faces administrability issues, encourages
investors to seek higher returns, and raises taxes on U.S. savers.
Policy and Outreach Associate
TAX FOUNDATION | 2
Recently, Sen. Ron Wyden (D-OR) unveiled a mark-to-market proposal1 to tax capital gains at the end
of each year. This proposal also features a lookback charge, which would be assessed based on how
long an asset owner defers their capital gains tax liability. When considering mark-to-market taxation
of capital gains, a lookback charge provides a reasonable solution for taxing hard-to-value assets.
However, it is important to recognize the limitations of a lookback charge compared to both mark-to-
market and the current tax treatment of capital gains. This paper will walk through what a lookback
charge is, how it is calculated, and its advantages and drawbacks. Using a simple example, this paper
will compare the tax treatment of an as