H.R.1261: To amend the Internal Revenue Code of 1986 to provide for the indexing of certain assets for purposes of determining gain or loss.

Capital Gains Inflation Relief Act of 2007 - Amends the Internal Revenue Code to allow an inflation adjustment based upon the gross domestic product deflator to the adjusted basis of certain assets (including C corporation common stock and tangible property used in a trade or business) held by a taxpayer for more than three years for purposes of determining gain or loss on the sale or other disposition of such assets.

Sets forth rules for applying such inflation adjustment to short sales, regulated investment companies and real estate investment trusts, partnerships and other pass-thru entities, and dispositions of assets between related persons.