Modernization of Derivatives Tax Act of 2026
Sponsored By: Senator Wyden, Ron [D-OR]
Introduced
Summary
A comprehensive federal tax regime for derivatives and similar contracts. The Modernization of Derivatives Tax Act of 2026 would set when and how gains and losses from derivatives and related contracts are taxed, and create new rules for hedging, straddles, and corporate stock-related contracts.
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- Investors and traders: Would require recognition of gain or loss when a taxable event occurs and generally treat derivative results as ordinary income or loss. It creates detailed "investment hedging unit" rules and delta-based tests for position treatment, with a -0.7 to -1.0 offset range used for straddle determinations.
- Corporations and issuers: Would define a "section 1032 derivative item" that changes how derivatives tied to a corporation's own stock are taxed. It would force income inclusion and original issue discount treatment for certain forward-contract plans and creates a 60-day presumption window around stock acquisitions.
- REITs and tax administration: Would let real estate investment trusts elect to include certain debt in hedging units and revise how income from those units is computed. The Secretary of the Treasury would get broad rulemaking and anti-avoidance authority to implement delta methods, carve outs, and transition rules.
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Bill Overview
Analyzed Economic Effects
8 provisions identified: 1 benefits, 1 costs, 6 mixed.
Corporate forward contracts taxed sooner
If enacted, the bill would require a corporation that acquires its own stock as part of a plan with a forward contract to include as income the excess of forward amounts over the stock's fair market value at contract entry. That excess would be treated as original issue discount to the extent the forward covers stock actually acquired. A forward entered within 60 days beginning 30 days before the acquisition would be presumed part of the plan unless rebutted. These changes would apply to transactions after enactment.
REIT transition and hedging election
If enacted, the bill would let a REIT elect to include fixed-rate debt and related interest-rate derivatives in an investment hedging unit during transition. Income from investments entered to manage risk in that unit would not count as disqualifying REIT gross income under certain rules. The election would be irrevocable without IRS consent, and the bill would require separate computation of gross income items under the new rules.
Broader legal definition of derivatives
If enacted, the bill would treat many more contracts as "derivatives," including options, forwards, swaps, short positions, and other contracts tied to stocks, debt, property, commodities, currencies, rates, or indexes. The bill would list exclusions for common transactions and let Treasury add more exceptions. It would also define listed options and regulated futures, and treat ADRs as the foreign shares they represent unless Treasury says otherwise.
New straddle loss and reporting rules
If enacted, the bill would treat positions as a straddle when their deltas offset by about -0.7 to -1.0. You could only recognize losses to the extent they exceed the unrecognized gains in offsetting positions, and disallowed losses would carry forward. The bill would also require disclosure of positions with unrecognized gain and could treat related-party and many pass-through positions as yours.
New timing rules for derivatives
If enacted, the bill would require you to recognize gains or losses from a derivative when a defined taxable event happens. Payments under a derivative (other than an option) would be taken into account when paid, except when paid as part of a taxable event. The bill would let taxpayers use broker 6045(b) valuations or financial statement values to measure gains and losses, but it would add recordkeeping and valuation duties.
Non-derivative contracts taxed like sales
If enacted, the bill would treat gain or loss from certain non-derivative contract rights as if you sold the related property. That means the gain or loss would get the same tax character the underlying property would have in your hands. The rule applies when the interest is terminated, transferred, or paid out.
Rules for investment hedging units
If enacted, the bill would let you elect to treat a derivative and its underlying investment as one "investment hedging unit." The election would generally be irrevocable and periods inside the unit would not count toward long-term holding periods. The bill would use delta tests (including a -0.7 to -1.0 delta window) to decide what can be in a unit and how built-in gains or losses are measured and characterized.
Dealer and trader rule coordination
If enacted, the bill would change how derivatives covered by the new part interact with dealer and trader mark-to-market rules. Some derivatives would be excluded from certain section 475 treatments, which would alter which instruments dealers and traders can mark to market. This could change tax accounting for many market participants.
Sponsors & CoSponsors
Sponsor
Wyden, Ron [D-OR]
OR • D
Cosponsors
There are no cosponsors for this bill.
Roll Call Votes
No roll call votes available for this bill.
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