Sponsors (9)
The bill relieves property owners of federal tax on gains from eminent-domain conversions—providing direct financial relief and optional flexibility—but it shifts revenue away from the Treasury and creates timing and election complexities (and short-term uncertainty) for some taxpayers.
Owners of property taken by eminent domain (homeowners and small businesses) will not owe federal tax on the gain from that conversion because the gain is excluded from taxable income.
Affected owners can choose to opt out of the exclusion and instead use other tax rules (for example, section 1033 deferral) if that alternative is more favorable for their situation.
The Treasury will issue regulations or guidance to clarify how the exclusion and related elections apply, reducing uncertainty about tax consequences for those impacted.
Property owners who would prefer deferral under section 1033 may face added complexity or lose deferral benefits if they do not timely elect out of the new exclusion.
Owners in areas facing potential eminent-domain actions may experience short-term ambiguity and planning uncertainty until Treasury issues implementing regulations.
Excluding gains from federal tax will reduce federal tax receipts modestly, which could increase budget pressures or slightly reduce funding available for other programs.
Based on analysis of 2 sections of legislative text.
Excludes from federal gross income gains from eminent domain or imminent-threat sales of U.S. property, with an opt-out and Treasury guidance.
Introduced February 25, 2026 by Benjamin Cline · Last progress February 25, 2026
Excludes from federal taxable income any gain a taxpayer realizes when their U.S. property is taken through eminent domain or when they sell under the threat or imminence of eminent domain. Taxpayers may elect out of the exclusion so other existing tax rules for involuntary conversions can apply, and the Treasury must issue regulations or guidance; the change applies to taxable years ending after enactment.