Sponsors (10)
The bill gives targeted tax relief to owners of condemned property (with an opt-out to preserve §1033 treatment) but reduces federal revenue and introduces election-related compliance risks and complexity for taxpayers.
Homeowners and small-business owners whose U.S. real property is condemned can exclude the gain from eminent-domain takings from federal taxable income, reducing their federal tax bills.
Affected owners can choose to elect out of the exclusion and instead use the ordinary §1033 involuntary-conversion deferral rules, preserving flexibility to defer gain when that is more favorable for their tax situation.
All taxpayers are exposed to lower federal revenue because excluded condemned-property gains will not be taxed, which could increase the deficit or crowd out other federal spending priorities.
Homeowners and small businesses who fail to timely or properly elect out may lose access to the familiar §1033 deferral mechanics, resulting in higher immediate tax liability or lost tax-planning options.
Taxpayers will face added complexity and potential compliance costs deciding whether to elect out and complying with the new rules while awaiting Treasury guidance and regulations.
Based on analysis of 2 sections of legislative text.
Excludes gains from eminent domain or imminent-takings of U.S. property from federal gross income, with a taxpayer opt-out and Treasury rulemaking.
Official title: To amend the Internal Revenue Code of 1986 to exclude from gross income gain from the conversion of property by reason of eminent domain.
Introduced February 25, 2026 by Benjamin Cline · Last progress February 25, 2026
Excludes from federal gross income any gain a taxpayer realizes when property in the United States is taken through eminent domain or sold/exchanged because eminent domain is threatened or imminent. Taxpayers may elect out of the exclusion; the Treasury must issue regulations or guidance, and the rule applies to taxable years ending after enactment. This change creates a specific new Internal Revenue Code section that overrides the usual involuntary conversion rules for covered takings, updates the tax code table of sections, and directs administrative implementation by the Secretary of the Treasury.