One provision of the 1913 individual income tax that generated a great deal of confusion was the taxation of income from the sale of property (ie, capital gains income). This initial confusion has led to almost 100 years of legislative debates over capital gains. Beginning in 1922 capital gains were first subject to lower tax rates than ordinary income. This preferential treatment has continued throughout most of the history of the income tax. Proposals dealing with the taxation of capital gains have ranged from the outright elimination of capital gains taxation to the reduction of capital gains tax rates for certain classes of taxpayers to the elimination of the preferential tax treatment.

Overall, capital gains tax revenues have been a fairly small, but not trivial, source of government revenue. Since 1954, revenue from the capital gains tax as a share of total income tax revenue has averaged 5.2%. It reached a peak of 12.8% in 1986 and a low of 2.0% in 1957. Nonetheless, the 2007 capital gains tax revenue of $123 billion was equal to 75% of the FY2007 budget deficit.