Modernization of Derivatives Tax Act of 2026

The Modernization of Derivatives Tax Act of 2026 changes how taxpayers report gains and losses from financial derivatives and related investments. It requires individuals and businesses to recognize these gains or losses as ordinary income or loss in the year they occur, rather than waiting until they sell the assets. The bill introduces a new 'investment hedging unit' concept that allows taxpayers to group specific derivatives with their underlying investments, which changes how certain built-in profits and losses are calculated and reported. Additionally, the legislation updates existing tax rules regarding straddles and clarifies how corporations handle derivatives related to their own stock.