Include non-Schedule-D capital gain distributions in gross income and net investment income#8839
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MaxGhenis wants to merge 2 commits into
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Include non-Schedule-D capital gain distributions in gross income and net investment income#8839MaxGhenis wants to merge 2 commits into
MaxGhenis wants to merge 2 commits into
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… 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
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Fixes #8828
Problem
non_sch_d_capital_gains(capital gain distributions reported directly on Form 1040 line 7 without Schedule D — PUFE01100, calibrated to SOI Table 1.4) is referenced by the QDCGT worksheet (dwks09/dwks10) andhas_qdiv_or_ltcg, but was never included in gross income or net investment income. The $13.7B (2026) of income it carries in the enhanced CPS was never taxed: neutralizing the variable changedincome_taxby $0.Changes
non_sch_d_capital_gainstogov/irs/gross_income/sources.yaml— capital gain distributions are gross income under IRC §61 and enter total income on Form 1040 line 7 even when Schedule D is not required.gov/irs/investment/income/sources.yaml— they are net investment income per Form 8960 instructions (this also flows intoeitc_relevant_investment_income, which builds onnet_investment_income).dwks09/dwks10already implement the QDCGT worksheet line 3 branch (no-Schedule-D filers enter capital gain distributions), matching the form. Note the sources-list route avoids double-counting; folding the variable into thecapital_gainsaggregate instead would count it twice in the worksheet.Impact (2026 enhanced CPS)
Tests
irs_gross_income.yaml: distributions included in gross income.integration/non_sch_d_capital_gains.yaml: AGI inclusion, preferential-rate treatment viadwks10, NII inclusion, zero tax below the standard deduction, and NIIT at 3.8% above the MAGI threshold (hand-computed $380 case).gov/irs/integration/(19),gov/irs/credits/earned_income(44), and TAXSIM capital-gains parity all pass. No existing test sets this variable.Data note: 0.6% of
non_sch_d_capital_gainsdollars sit on imputed records that also have Schedule D gains (impossible on a real return — distributions would be on Schedule D line 13); flagged for the imputation in PolicyEngine/populace#274.Motivation
Required for scoring the GROWTH Act (H.R. 2089 / S. 1839), which defers tax on automatically reinvested RIC capital gain distributions — previously a reform on this variable mechanically scored $0.
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