Sponsors (11)
The bill gives property owners significant tax relief when their U.S. property is condemned, at the cost of reduced federal revenue and added compliance/risk that some owners may lose traditional §1033 deferral benefits if they do not navigate the new election rules correctly.
Homeowners, small businesses, and other U.S. property owners can exclude gain from federal income tax when their property is taken by eminent domain, lowering or eliminating the federal tax liability arising from the condemnation.
Property owners may preserve the familiar §1033 involuntary-conversion deferral treatment by timely electing out of the new exclusion, giving taxpayers flexibility to choose the tax treatment that yields the better outcome.
All taxpayers: excluding condemned-property gains from taxable income will reduce federal revenue and could increase the deficit or crowd out other federal spending priorities.
Property owners and taxpayers will face added compliance complexity and potential administrative costs deciding whether to elect out and in navigating the new rules while awaiting Treasury guidance and regulations.
Owners who fail to timely elect out could lose access to the familiar §1033 involuntary-conversion deferral mechanics and end up with an unexpected taxable gain, producing higher tax bills than under current practice.
Based on analysis of 2 sections of legislative text.
Excludes from gross income gains from U.S. property conversions by eminent domain, unless the taxpayer elects out to use existing involuntary-conversion rules.
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 gross income gains taxpayers realize when property located in the United States is taken through eminent domain or effectively taken by threat or imminence of condemnation. Taxpayers may elect out to have the regular involuntary conversion rules apply, and the Treasury must issue regulations or guidance to implement the change. The change is added to the Internal Revenue Code, is effective for taxable years ending after enactment, and requires the Secretary of the Treasury to prescribe forms, timing, and guidance for elections and compliance.