Bill · S. 4331· Senate(119-S-4331)
Modernization of Derivatives Tax Act of 2026
- Introduced
- 4/16/2026
- Last activity
- 4/16/2026 — Read twice and referred to the Committee on Finance.
- Sponsored by
- Ron Wyden
- Cosponsors
- None
- Introduced
- In Committee
What this bill would do
This bill, titled the "Modernization of Derivatives Tax Act of 2026," aims to update the tax treatment of derivatives and their underlying investments within the Internal Revenue Code of 1986. It introduces new rules for how gains and losses from derivatives are recognized and categorized, specifically treating them as ordinary income or loss. The legislation establishes the concept of "investment hedging units" to manage how these tax events are recorded. It also provides specific election options for certain taxpayers, such as real estate investment trusts. Additionally, the bill coordinates these new rules with existing tax laws regarding straddles and dealers.
Yes
Does this raise the taxes companies pay?+5
The bill reclassifies gains from derivatives as ordinary income rather than capital gains, which may increase the tax burden on corporations.
Does this raise taxes on the highest earners?+4
Treating derivative gains as ordinary income instead of capital gains generally increases the tax rate paid by high-earning investors.
Does this make what the government does easier for the public to see?+1
The bill establishes new, specific requirements for the identification and reporting of derivative holdings.
The opposite
Would high-income households be better off under this?-5
High-income investors may face higher tax rates due to the shift from capital gains to ordinary income treatment.
Would business owners be better off under this?-3
The bill imposes strict identification timelines and irrevocable election rules on taxpayers.
Is this likely to grow the economy?-2
The reclassification of derivative gains to ordinary income may create tax complexities that affect investment behavior.
Who it would affect, and how
Potential Positive Impacts for People
-
Specific Treatment for Real Estate Investment Trusts (REITs): REITs may benefit from an election that allows them to include certain fixed-rate debt instruments and interest rate derivatives in an investment hedging unit, which helps manage risk (Section 492(b)(4)).
-
Tax Treatment for REITS: Income from transactions used to manage risks of interest rate or price changes in an investment hedging unit will not constitute gross income for REITs (Section 856(c)(5)(M)).
-
Tax Treatment for Insurance Companies: The bill includes provisions for debt instruments held by applicable insurance companies to be treated as ordinary assets (Section 1221(a)(9)).
-
Clarification for Taxpayers: The bill allows taxpayers to rely on valuations provided by a broker or determined under an applicable financial statement to determine the amount of gain or loss (Section 491(b)(2)(A)).
Potential Negative Impacts for People
-
Reclassification of Income: Gains or losses from derivatives will be treated as ordinary income or loss and as attributable to a trade or business, rather than capital gains (Section 491(b)(1)(A)).
-
Requirement for Identification: Taxpayers who do not make a specific election are still required to test and identify derivatives and portions of underlying investments to determine if they are part of an investment hedging unit (Section 492(c)).
-
Irrevocable Elections: For many taxpayers, once an election is made to treat items as part of an investment hedging unit, that decision is irrevocable (Section 492(b)(2)(B)).
-
Strict Identification Timelines: Taxpayers are required to perform testing and identification of their holdings at specific times, such as the beginning of a period or immediately after entering into new transactions (Section 492(c)(3)(A)).
Groups and Interests Ranking
Every group the model scored this bill for, from -10 to +10. Hover a score for the reason it gave.
- Demographic And Interest Groups
- Good For High Income Households-5Good For Business Owners-3
- Economy And Finance
- Increases Corporate Taxes+5Increases Wealthy Taxes+4Improves Economic Growth-2
- Governance And Ideology
- Improves Government Transparency+1
- 4/16/2026
- Read twice and referred to the Committee on Finance.
- Introduced in Senate