Cline Introduces Bill to Eliminate Federal Taxes on Eminent Domain Sales

U.S. Rep. Ben Cline (R-VA-06) has introduced legislation aimed at protecting property owners from paying federal capital gains taxes when their property is taken through eminent domain.

The proposed measure, titled the No Tax on Takings Act, would amend the Internal Revenue Code to prevent homeowners, farmers, and business owners from facing federal tax liability on proceeds received after the government compels them to sell their property.

“Families should never be hit with a federal tax bill after the government forces them to sell their own property,” Cline said in a statement. “When eminent domain is used, property owners are already navigating a difficult process through no fault of their own. The federal government should not increase that burden by taxing a transaction into which it did not voluntarily enter. My bill delivers a simple, commonsense fix to the tax code to ensure Americans are treated fairly and protected from punitive tax consequences when their property is taken.”

Under current law, property owners who receive compensation through eminent domain may owe capital gains taxes if the payout exceeds their original purchase price or adjusted basis. Critics of the policy argue that this results in what they describe as a “double burden” for affected property owners.

According to Cline’s office, individuals facing eminent domain proceedings are often:

1. Required to accept a government-determined “fair market value” for their property; and
2. Obligated to pay capital gains taxes on any proceeds from the forced sale.

Supporters of the bill say taxing compensation reduces the constitutional requirement of “just compensation” under the Fifth Amendment’s Takings Clause.

Thomas Aiello, Senior Director of Government Affairs at the National Taxpayers Union, praised the proposal.

“When governments force the sale of private property through eminent domain, taxpayers may be subject to a tax liability through no fault of their own,” Aiello said. “That’s not fair, and the No Tax on Takings Act rightly corrects this problem by amending the Internal Revenue Code to shield unsuspecting property owners from paying punitive federal taxes on a transaction they did not choose.”

James Edwards, founder and executive director of Conservatives for Property Rights, also voiced support.

“Taxing the compensation paid to a landowner reduces the amount of ‘just compensation’ received,” Edwards said. “The government compels property owners to sell land they may have had no intention of selling. So, Rep. Cline’s legislation is consistent with the Takings Clause.”

The bill has been referred to committee for consideration. It is unclear at this stage whether the measure will receive bipartisan support or be included in broader tax legislation during the current session of Congress.