-CITE-
26 USC Subchapter P - Capital Gains and Losses 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
-HEAD-
SUBCHAPTER P - CAPITAL GAINS AND LOSSES
-MISC1-
Part
I. Treatment of capital gains.
II. Treatment of capital losses.
III. General rules for determining capital gains and
losses.
IV. Special rules for determining capital gains and
losses.
V. Special rules for bonds and other debt instruments.
VI. Treatment of certain passive foreign investment
companies.
AMENDMENTS
1986 - Pub. L. 99-514, title XII, Sec. 1235(g), Oct. 22, 1986,
100 Stat. 2576, added item for part VI.
1984 - Pub. L. 98-369, div. A, title I, Sec. 42(b)(1), July 18,
1984, 98 Stat. 557, added item for part V.
-SECREF-
SUBCHAPTER REFERRED TO IN OTHER SECTIONS
This subchapter is referred to in sections 832, 834, 1011, 1012
of this title.
-End-
-CITE-
26 USC PART I - TREATMENT OF CAPITAL GAINS 01/19/04
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TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART I - TREATMENT OF CAPITAL GAINS
-HEAD-
PART I - TREATMENT OF CAPITAL GAINS
-MISC1-
Sec.
1201. Alternative tax for corporations.
1202. Partial exclusion for gain from certain small business
stock.
AMENDMENTS
2000 - Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec. 117(b)(3)],
Dec. 21, 2000, 114 Stat. 2763, 2763A-604, substituted "Partial" for
"50-percent" in item 1202.
1993 - Pub. L. 103-66, title XIII, Sec. 13113(d)(6), Aug. 10,
1993, 107 Stat. 430, added item 1202.
1986 - Pub. L. 99-514, title III, Sec. 301(b)(13), Oct. 22, 1986,
100 Stat. 2218, struck out item 1202 "Deduction for capital gains".
1978 - Pub. L. 95-600, title IV, Sec. 401(b)(6), Nov. 6, 1978, 92
Stat. 2867, substituted "Alternative tax for corporations" for
"Alternative tax" in item 1201.
-End-
-CITE-
26 USC Sec. 1201 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART I - TREATMENT OF CAPITAL GAINS
-HEAD-
Sec. 1201. Alternative tax for corporations
-STATUTE-
(a) General rule
If for any taxable year a corporation has a net capital gain and
any rate of tax imposed by section 11, 511, or 831(a) or (b)
(whichever is applicable) exceeds 35 percent (determined without
regard to the last 2 sentences of section 11(b)(1)), then, in lieu
of any such tax, there is hereby imposed a tax (if such tax is less
than the tax imposed by such sections) which shall consist of the
sum of -
(1) a tax computed on the taxable income reduced by the amount
of the net capital gain, at the rates and in the manner as if
this subsection had not been enacted, plus
(2) a tax of 35 percent of the net capital gain (or, if less,
taxable income).
(b) Cross references
For computation of the alternative tax -
(1) in the case of life insurance companies, see section
801(a)(2),
(2) in the case of regulated investment companies and their
shareholders, see section 852(b)(3)(A) and (D), and
(3) in the case of real estate investment trusts, see
section 857(b)(3)(A).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 320; Mar. 13, 1956, ch. 83, Sec.
5(7), 70 Stat. 49; Pub. L. 86-69, Sec. 3(f)(2), June 25, 1959, 73
Stat. 140; Pub. L. 87-834, Sec. 8(g)(3), Oct. 16, 1962, 76 Stat.
999; Pub. L. 91-172, title V, Sec. 511(b), Dec. 30, 1969, 83 Stat.
635; Pub. L. 94-455, title XIX, Sec. 1901(a)(135), (b)(33)(L), Oct.
4, 1976, 90 Stat. 1786, 1801; Pub. L. 95-600, title IV, Secs.
401(a), 403(a), (b), Nov. 6, 1978, 92 Stat. 2866, 2868; Pub. L.
96-222, title I, Sec. 104(a)(2)(B), (3)(A), Apr. 1, 1980, 94 Stat.
214, 215; Pub. L. 98-369, div. A, title II, Sec. 211(b)(16), July
18, 1984, 98 Stat. 756; Pub. L. 99-514, title III, Sec. 311(a),
title X, Sec. 1024(c)(14), Oct. 22, 1986, 100 Stat. 2219, 2408;
Pub. L. 100-647, title I, Sec. 1003(c)(1), title II, Sec. 2004(l),
Nov. 10, 1988, 102 Stat. 3384, 3606; Pub. L. 103-66, title XIII,
Sec. 13221(c)(2), Aug. 10, 1993, 107 Stat. 477; Pub. L. 104-188,
title I, Sec. 1703(f), Aug. 20, 1996, 110 Stat. 1876; Pub. L.
105-34, title III, Sec. 314(a), Aug. 5, 1997, 111 Stat. 842.)
-MISC1-
AMENDMENTS
1997 - Subsec. (a)(2). Pub. L. 105-34 inserted "(or, if less,
taxable income)" after "capital gain".
1996 - Subsec. (a). Pub. L. 104-188 substituted "last 2
sentences" for "last sentence".
1993 - Subsec. (a). Pub. L. 103-66 substituted "35 percent" for
"34 percent" in introductory provisions and in par. (2).
1988 - Subsec. (a). Pub. L. 100-647, Sec. 2004(l), substituted
"section 11(b)(1)" for "section 11(b)".
Pub. L. 100-647, Sec. 1003(c)(1), substituted "section 831(a) or
(b)" for "section 831(a)".
1986 - Subsec. (a). Pub. L. 99-514, Sec. 1024(c)(14), which
directed the amendment of subsec. (a) by substituting "831(a) or
(b)" for "821(a) or (c) and 831(a)" could not be executed in view
of amendment by section 311(a) of Pub. L. 99-514.
Pub. L. 99-514, Sec. 311(a), amended subsec. (a) generally. Prior
to amendment, subsec. (a), corporations, read as follows: "If for
any taxable year a corporation has a net capital gain, then, in
lieu of the tax imposed by sections 11, 511, 821(a) or (c) and
831(a), there is hereby imposed a tax (if such tax is less than the
tax imposed by such sections) which shall consist of the sum of -
"(1) a tax computed on the taxable income reduced by the amount
of the net capital gain, at the rates and in the manner as if
this subsection had not been enacted, plus
"(2) a tax of 28 percent of the net capital gain."
Subsec. (b). Pub. L. 99-514, Sec. 311(a), amended subsec. (b)
generally, substituting a comma for the semicolon at end of par.
(1) and after "852(b)(3)(A) and (D)" in par. (2).
Subsec. (c). Pub. L. 99-514, Sec. 311(a), in amending section
generally, struck out subsec. (c), transitional rule, which read as
follows: "If for any taxable year ending after December 31, 1978,
and beginning before January 1, 1980, a corporation has a net
capital gain, then subsection (a) shall be applied by substituting
for the language of paragraph (2) the following:
"(2)(A) a tax of 28 percent of the lesser of -
"(i) the net capital gain for the taxable year, or
"(ii) the net capital gain taking into account only gain or
loss properly taken into account for the portion of the taxable
year after December 31, 1978, plus
"(B) a tax of 30 percent of the excess of -
"(i) the net capital gains for the taxable year, over
"(ii) the amount of net capital gain taken into account under
subparagraph (A)."
1984 - Subsec. (b)(1). Pub. L. 98-369 substituted "section
801(a)(2)" for "section 802(a)(2)".
1980 - Subsec. (b). Pub. L. 96-222, Sec. 104(a)(2)(B)(i),
substituted in subsec. (b), as subsec. (b) was in effect for
taxable years beginning before Jan. 1, 1979, and prior to its
repeal by Pub. L. 95-600 (see 1978 Amendment note below), "the
excess of the net capital gain over the deduction under section
1202" for "50 percent of the net capital gain".
Subsec. (c). Pub. L. 96-222, Sec. 104(a)(3)(A), substituted in
heading "Transitional rule" for "Taxable years which include
January 1, 1979", in provisions preceding par. (2) "If for any
taxable year ending after December 31, 1978, and beginning before
January 1, 1980" for "If for any taxable year beginning before
January 1, 1979, and ending after December 31, 1978", and in par.
(2)(A)(ii) "gain or loss properly taken into account for the
portion of the taxable year" for "sales and exchanges".
Pub. L. 96-222, Sec. 104(a)(2)(B)(ii), substituted in subsec.
(c), as subsec. (c) was in effect for taxable years beginning
before Jan. 1, 1979, and prior to its repeal by Pub. L. 95-600 (see
1978 Amendment note below), "the excess of the net capital gain
over the deduction under section 1202" for "50 percent of the net
capital gain", redesignated cls. (A) and (B) as pars. (1) and (2),
respectively, and in par. (2) as so redesignated, substituted
"determined by multiplying the sum referred to in subsection
(b)(2)(A) by a fraction" for "equal to 50 percent of the sum
referred to in subsection (b)(2)(A)" and added subpars. (A) and
(B).
1978 - Pub. L. 95-600, Sec. 401(a)(3), inserted "for
corporations" after "tax" in section catchline.
Subsec. (a)(2). Pub. L. 95-600, Sec. 403(a), substituted "28
percent" for "30 percent".
Subsec. (b). Pub. L. 95-600, Sec. 401(a)(1), (2), redesignated
subsec. (d) as (b). Former subsec. (b), relating to imposition of
the alternative tax on other taxpayers, was struck out. See 1980
Amendment note above.
Subsec. (c). Pub. L. 95-600, Secs. 401(a)(1), 403(b), added
subsec. (c). Former subsec. (c), which related to computation of
the alternative tax where the capital gain exceeds $50,000, was
struck out. See 1980 Amendment note above.
Subsec. (d). Pub. L. 95-600, Sec. 401(a)(2), redesignated subsec.
(d) as (b).
1976 - Subsec. (a). Pub. L. 94-455, Sec. 1901(a)(135)(A),
substituted "net capital gain" for "net section 1201 gain" in three
places, incorporated existing text in provisions designated par.
(1), struck out prior par. (1) provision adding to the tax in the
case of a taxable year beginning before Jan. 1, 1975 -
(A) a tax of 25 percent of the lesser of -
(i) the amount of the subsec. (d) gain, or
(ii) the amount of the net section 1201 gain, and
(B) a tax of 30 percent (28 percent in the case of a taxable
year beginning after Dec. 31, 1969, and before Jan. 1, 1971) of
the excess (if any) of the net section 1201 gain over the subsec.
(d) gain, and struck out from par. (2) introductory text "in the
case of a taxable year beginning after December 31, 1974,".
Subsec. (b). Pub. L. 94-455, Sec. 1901(b)(33)(L), substituted
"net capital gain" for "net section 1201 gain" in introductory text
and in par. (1).
Subsec. (b)(2)(A). Pub. L. 94-455, Sec. 1901(a)(135)(C)(ii),
substituted "the sum of the long-term capital gains for the taxable
year, but not to exceed $50,000 ($25,000 in the case of a married
individual filing a separate return)" for "the amount of the
subsection (d) gain".
Subsec. (b)(2)(B). Pub. L. 94-455, Sec. 1901(b)(33)(L),
substituted "net capital gain" for "net section 1201 gain".
Subsec. (b)(3). Pub. L. 94-455, Sec. 1901(a)(135)(C)(iii),
(b)(33)(L), substituted "the sum referred to in subparagraph (A)"
for "the amount of the subsection (d) gain" and "net capital gain"
for "net section 1201 gain".
Subsec. (c). Pub. L. 94-455, Sec. 1901(a)(135)(B), substituted in
heading "where capital gain exceeds $50,000" for "on capital gain
in excess of subsection (d) gain", struck out par. (1) designation,
substituted "net capital gain" for "net section 1201 gain" and "50
percent of the sum referred to in subsection (b)(2)(A)" for "50
percent of the subsection (d) gain", and struck out par. (2)
limitation that the tax computed for purposes of subsec. (b) shall
not exceed an amount equal to the following percentage of the
excess of the net section 1201 gain over the subsec. (d) gain:
(A) 29 1/2 percent, in the case of a taxable year beginning
after Dec. 31, 1969, and before Jan. 1, 1971, or
(B) 32 1/2 percent, in the case of a taxable year beginning
after Dec. 31, 1971, and before Jan. 1, 1972.
Subsecs. (d), (e). Pub. L. 94-455, Sec. 1901(a)(135)(C)(i),
redesignated subsec. (e) as (d) and struck out existing subsec. (d)
defining "subsection (d) gain".
1969 - Subsec. (a). Pub. L. 91-172 substituted reference to net
section 1201 gain for reference to the excess of the net long-term
capital gain of a corporation over the net short-term capital loss,
substituted "a tax computed on the taxable income reduced by the
amount of the net section 1201 gain" for "a partial tax computed on
the taxable income reduced by the taxable income reduced by the
amount of such excess," struck out reference to tax of an amount
equal to 25 percent of excess or in the case of a taxable year
beginning before Apr. 1, 1954 an amount equal to 26 percent of such
excess without regard to section 21 of this title, and inserted, in
the case of a taxable year beginning Jan. 1, 1975, a tax of 25
percent of the lesser of the amount of the subsec. (d) gain, or the
amount of the net section 1201 gain, and a tax of 30 percent (28
percent in the case of a taxable year beginning after Dec. 31, 1969
and before Jan. 1, 1971) of the excess (if any) of the net section
1201 gain over the subsec. (d) gain, and in case of a taxable year
beginning after Dec. 31, 1974, a tax of 30 percent of the net
section 1201 gain.
Subsec. (b). Pub. L. 91-172 substituted reference to net section
1201 gain for reference to the excess of the net long-term capital
gain over the net short-term capital loss, substituted "a tax
computed on the taxable income reduced by an amount equal to 50
percent of the net section 1201 gain" for "a partial tax computed
on the taxable income reduced by an amount equal to 50 percent of
such excess," struck out reference to tax of an amount equal to 25
percent of the excess of the net long-term capital gain over the
net short-term capital loss, and inserted reference to a tax of 25
percent of the lesser of the amount of the subsec. (d) gain, or the
amount of the net section 1201 gain, and if the amount of the net
section 1201 gain exceeds the amount of the subsec. (d) gain, a tax
computed as provided in subsec. (c) on such excess.
Subsec. (c). Pub. L. 91-172 added subsec. (c). Former subsec. (c)
redesignated (e)(1).
Subsec (d). Pub. L. 91-172 added subsec. (d).
Subsec. (e). Pub. L. 91-172 redesignated former subsec. (c) as
par. (1) and added pars. (2) and (3).
1962 - Subsec. (a). Pub. L. 87-834 substituted "section 821(a) or
(c)" for section 821(a)(1) or (b)".
1959 - Subsec. (a). Pub. L. 86-69 struck out reference to section
802(a).
Subsec. (c). Pub. L. 86-69 added subsec. (c).
1956 - Subsec. (a). Act Mar. 13, 1956, inserted reference to
section 802(a).
EFFECTIVE DATE OF 1997 AMENDMENT
Section 314(b) of Pub. L. 105-34 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years ending after December 31, 1997."
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 effective as if included in the
provision of the Revenue Reconciliation Act of 1993, Pub. L.
103-66, Secs. 13001-13444, to which such amendment relates, see
section 1703(o) of Pub. L. 104-188, set out as a note under section
39 of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable to taxable years beginning
on or after Jan. 1, 1993, see section 13221(d) of Pub. L. 103-66,
set out as a note under section 11 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1003(c)(1) of Pub. L. 100-647 effective,
except as otherwise provided, as if included in the provision of
the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment
relates, see section 1019(a) of Pub. L. 100-647, set out as a note
under section 1 of this title.
Amendment by section 2004(l) of Pub. L. 100-647 effective, except
as otherwise provided, as if included in the provisions of the
Revenue Act of 1987, Pub. L. 100-203, title X, to which such
amendment relates, see section 2004(u) of Pub. L. 100-647, set out
as a note under section 56 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 311(c) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1003(c)(2), Nov. 10, 1988, 102 Stat. 3384, provided
that: "The amendments made by subsections (a) and (b) [amending
this section and sections 593, 631, 852, and 1445 of this title]
shall apply to taxable years beginning after December 31, 1986;
except that the amendment made by subsection (b)(4) [amending
section 1445 of this title] shall apply to payments made after
December 31, 1986."
Amendment by section 1024 of Pub. L. 99-514 applicable to taxable
years beginning after Dec. 31, 1986, see section 1024(e) of Pub. L.
99-514, set out as a note under section 831 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to taxable years beginning
after Dec. 31, 1983, see section 215 of Pub. L. 98-369, set out as
an Effective Date note under section 801 of this title.
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by section 104(a)(3)(A) of Pub. L. 96-222 effective,
except as otherwise provided, as if it had been included in the
provisions of the Revenue Act of 1978, Pub. L. 95-600, to which
such amendment relates, see section 201 of Pub. L. 96-222, set out
as a note under section 32 of this title.
Section 104(b)(1) of Pub. L. 96-222 provided that: "The
amendments made by subsection (a)(2)(B) [amending this section]
shall apply to taxable years beginning in 1978."
EFFECTIVE DATE OF 1978 AMENDMENT
Section 401(c) of Pub. L. 95-600 provided that: "The amendments
made by this section [amending this section and sections 3, 5, 871,
911, and 1304 of this title] shall apply to taxable years beginning
after December 31, 1978."
Section 403(d)(1) of Pub. L. 95-600 provided that: "The
amendments made by subsections (a) and (b) [amending this section]
shall apply to taxable years ending after December 31, 1978."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 applicable with respect to taxable
years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L.
94-455, set out as a note under section 2 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Section 511(d) of Pub. L. 91-172 provided that: "The amendments
made by this section [amending this section and sections 802, 852,
857, and 1378 of this title] shall apply to taxable years beginning
after December 31, 1969."
EFFECTIVE DATE OF 1962 AMENDMENT
Amendment by Pub. L. 87-834 applicable with respect to taxable
years beginning after Dec. 31, 1962, see section 8(h) of Pub. L.
87-834, set out as a note under section 501 of this title.
EFFECTIVE DATE OF 1959 AMENDMENT
Amendment by Pub. L. 86-69 applicable only with respect to
taxable years beginning after Dec. 31, 1957, see section 4 of Pub.
L. 86-69, set out as a note under section 381 of this title.
EFFECTIVE DATE OF 1956 AMENDMENT
Amendment by act Mar. 13, 1956, applicable only to taxable years
beginning after Dec. 31, 1954, see section 6 of act Mar. 13, 1956,
set out as a note under section 316 of this title.
TRANSITIONAL RULES
Section 311(d)(1) of Pub. L. 99-514 provided that:
"(1) Taxable years which begin in 1986 and end in 1987. - In the
case of any taxable year which begins before January 1, 1987, and
ends on or after such date, paragraph (2) of section 1201(a) of the
Internal Revenue Code of 1954 [now 1986], as in effect on the date
before the date of enactment of this Act [Oct. 22, 1986], shall be
applied as if it read as follows:
" '(2) the sum of -
" '(A) 28 percent of the lesser of -
" '(i) the net capital gain determined by taking into
account only gain or loss which is properly taken into
account for the portion of the taxable year before January 1,
1987, or
" '(ii) the net capital gain for the taxable year, and
" '(B) 34 percent of the excess (if any) of -
" '(i) the net capital gain for the taxable year, over
" '(ii) the amount of the net capital gain taken into
account under subparagraph (A).' "
RATE ON NET CAPITAL GAIN FOR PORTION OF 1981; 20-PERCENT MAXIMUM
Pub. L. 97-34, title I, Sec. 102, Aug. 13, 1981, 95 Stat. 186, as
amended by Pub. L. 97-448, title I, Sec. 101(aa), Jan. 12, 1983, 96
Stat. 2366; Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095,
provided that:
"(a) In General. - If for any taxable year ending after June 9,
1981, and beginning before January 1, 1982, a taxpayer other than a
corporation has qualified net capital gain, then the tax imposed
under section 1 of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954] for such taxable year shall be equal to the lesser of
-
"(1) the tax imposed under such section determined without
regard to this subsection, or
"(2) the sum of -
"(A) the tax imposed under such section on the excess of -
"(i) the taxable income of the taxpayer, over
"(ii) 40 percent of the qualified net capital gain of the
taxpayer, and
"(B) 20 percent of the qualified net capital gain.
"(b) Application With Alternative Minimum Tax. -
"(1) In general. - If subsection (a) applies to any taxpayer
for any taxable year, then the amount determined under section
55(a)(1) of the Internal Revenue Code of 1986 for such taxable
year shall be equal to the lesser of -
"(A) the amount determined under such section 55(a)(1)
determined without regard to this subsection, or
"(B) the sum of -
"(i) the amount which would be determined under such
section 55(a)(1) if the alternative minimum taxable income
was the excess of -
"(I) the alternative minimum taxable income (within the
meaning of section 55(b)(1) of such Code) of the taxpayer,
over
"(II) the qualified net capital gain of the taxpayer, and
"(ii) 20 percent of the qualified net capital gain (or, if
lesser, the alternative minimum taxable income within the
meaning of section 55(b)(1) of such Code).
"(2) No credits allowable. - For purposes of section 55(c) of
such Code, no credit allowable under subpart A of part IV of
subchapter A of chapter 1 of such Code [section 31 et seq. of
this title] (other than section 33(a) of such Code) shall be
allowable against the amount described in paragraph (1)(B)(ii).
"(c) Qualified Net Capital Gain. -
"(1) In general. - For purposes of this section, the term
'qualified net capital gain' means the lesser of -
"(A) the net capital gain for the taxable year, or
"(B) the net capital gain for the taxable year taking into
account only gain or loss from sales or exchanges occurring
after June 9, 1981.
"(2) Net capital gain. - For purposes of this subsection, the
term 'net capital gain' has the meaning given such term by
section 1222(11) of the Internal Revenue Code of 1986.
"(d) Special Rule for Pass-Thru Entities. -
"(1) In general. - In applying subsections (a), (b), and (c)
with respect to any pass-thru entity, the determination of when a
sale or exchange has occurred shall be made at the entity level.
"(2) Pass-thru entity defined. - For purposes of paragraph (1),
the term 'pass-thru entity' means -
"(A) a regulated investment company,
"(B) a real estate investment trust,
"(C) an electing small business corporation,
"(D) a partnership,
"(E) an estate or trust, and
"(F) a common trust fund."
SPECIAL RULE FOR PASS-THROUGH ENTITIES
Section 104(a)(2)(C) of Pub. L. 96-222, as amended by Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(i) In general. - In applying sections 1201(c)(2)(A)(ii) and
1202(c)(1)(B) of the Internal Revenue Code of 1986 [formerly I.R.C.
1954] with respect to any pass-through entity, the determination of
the period for which gain or loss is properly taken into account
shall be made at the entity level.
"(ii) Pass-through entity defined. - For purposes of clause (i),
the term 'pass-through entity' means -
"(I) a regulated investment company,
"(II) a real estate investment trust,
"(III) an electing small business corporation,
"(IV) a partnership,
"(V) an estate or trust, and
"(VI) a common trust fund."
STUDY OF EFFECTS OF CHANGES IN THE TAX TREATMENT OF CAPITAL GAINS
ON STIMULATING INVESTMENT AND ECONOMIC GROWTH
Section 555 of Pub. L. 95-600 required the Secretary of the
Treasury to submit to specific committees of Congress a report, not
later than Sept. 30, 1981, respecting effects of changes in tax
treatment of capital gains on stimulating investment and economic
growth as a result of the enactment of title V of Pub. L. 95-600.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 12, 453A, 527, 594, 691,
801, 831, 852, 857, 882, 904, 1374, 1381, 6425, 6655, 7518 of this
title; title 46 App. section 1177.
-End-
-CITE-
26 USC Sec. 1202 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART I - TREATMENT OF CAPITAL GAINS
-HEAD-
Sec. 1202. Partial exclusion for gain from certain small business
stock
-STATUTE-
(a) Exclusion
(1) In general
In the case of a taxpayer other than a corporation, gross
income shall not include 50 percent of any gain from the sale or
exchange of qualified small business stock held for more than 5
years.
(2) Empowerment zone businesses
(A) In general
In the case of qualified small business stock acquired after
the date of the enactment of this paragraph in a corporation
which is a qualified business entity (as defined in section
1397C(b)) during substantially all of the taxpayer's holding
period for such stock, paragraph (1) shall be applied by
substituting "60 percent" for "50 percent".
(B) Certain rules to apply
Rules similar to the rules of paragraphs (5) and (7) of
section 1400B(b) shall apply for purposes of this paragraph.
(C) Gain after 2014 not qualified
Subparagraph (A) shall not apply to gain attributable to
periods after December 31, 2014.
(D) Treatment of DC zone
The District of Columbia Enterprise Zone shall not be treated
as an empowerment zone for purposes of this paragraph.
(b) Per-issuer limitation on taxpayer's eligible gain
(1) In general
If the taxpayer has eligible gain for the taxable year from 1
or more dispositions of stock issued by any corporation, the
aggregate amount of such gain from dispositions of stock issued
by such corporation which may be taken into account under
subsection (a) for the taxable year shall not exceed the greater
of -
(A) $10,000,000 reduced by the aggregate amount of eligible
gain taken into account by the taxpayer under subsection (a)
for prior taxable years and attributable to dispositions of
stock issued by such corporation, or
(B) 10 times the aggregate adjusted bases of qualified small
business stock issued by such corporation and disposed of by
the taxpayer during the taxable year.
For purposes of subparagraph (B), the adjusted basis of any stock
shall be determined without regard to any addition to basis after
the date on which such stock was originally issued.
(2) Eligible gain
For purposes of this subsection, the term "eligible gain" means
any gain from the sale or exchange of qualified small business
stock held for more than 5 years.
(3) Treatment of married individuals
(A) Separate returns
In the case of a separate return by a married individual,
paragraph (1)(A) shall be applied by substituting "$5,000,000"
for "$10,000,000".
(B) Allocation of exclusion
In the case of any joint return, the amount of gain taken
into account under subsection (a) shall be allocated equally
between the spouses for purposes of applying this subsection to
subsequent taxable years.
(C) Marital status
For purposes of this subsection, marital status shall be
determined under section 7703.
(c) Qualified small business stock
For purposes of this section -
(1) In general
Except as otherwise provided in this section, the term
"qualified small business stock" means any stock in a C
corporation which is originally issued after the date of the
enactment of the Revenue Reconciliation Act of 1993, if -
(A) as of the date of issuance, such corporation is a
qualified small business, and
(B) except as provided in subsections (f) and (h), such stock
is acquired by the taxpayer at its original issue (directly or
through an underwriter) -
(i) in exchange for money or other property (not including
stock), or
(ii) as compensation for services provided to such
corporation (other than services performed as an underwriter
of such stock).
(2) Active business requirement; etc.
(A) In general
Stock in a corporation shall not be treated as qualified
small business stock unless, during substantially all of the
taxpayer's holding period for such stock, such corporation
meets the active business requirements of subsection (e) and
such corporation is a C corporation.
(B) Special rule for certain small business investment
companies
(i) Waiver of active business requirement
Notwithstanding any provision of subsection (e), a
corporation shall be treated as meeting the active business
requirements of such subsection for any period during which
such corporation qualifies as a specialized small business
investment company.
(ii) Specialized small business investment company
For purposes of clause (i), the term "specialized small
business investment company" means any eligible corporation
(as defined in subsection (e)(4)) which is licensed to
operate under section 301(d) of the Small Business Investment
Act of 1958 (as in effect on May 13, 1993).
(3) Certain purchases by corporation of its own stock
(A) Redemptions from taxpayer or related person
Stock acquired by the taxpayer shall not be treated as
qualified small business stock if, at any time during the
4-year period beginning on the date 2 years before the issuance
of such stock, the corporation issuing such stock purchased
(directly or indirectly) any of its stock from the taxpayer or
from a person related (within the meaning of section 267(b) or
707(b)) to the taxpayer.
(B) Significant redemptions
Stock issued by a corporation shall not be treated as
qualified business stock if, during the 2-year period beginning
on the date 1 year before the issuance of such stock, such
corporation made 1 or more purchases of its stock with an
aggregate value (as of the time of the respective purchases)
exceeding 5 percent of the aggregate value of all of its stock
as of the beginning of such 2-year period.
(C) Treatment of certain transactions
If any transaction is treated under section 304(a) as a
distribution in redemption of the stock of any corporation, for
purposes of subparagraphs (A) and (B), such corporation shall
be treated as purchasing an amount of its stock equal to the
amount treated as such a distribution under section 304(a).
(d) Qualified small business
For purposes of this section -
(1) In general
The term "qualified small business" means any domestic
corporation which is a C corporation if -
(A) the aggregate gross assets of such corporation (or any
predecessor thereof) at all times on or after the date of the
enactment of the Revenue Reconciliation Act of 1993 and before
the issuance did not exceed $50,000,000,
(B) the aggregate gross assets of such corporation
immediately after the issuance (determined by taking into
account amounts received in the issuance) do not exceed
$50,000,000, and
(C) such corporation agrees to submit such reports to the
Secretary and to shareholders as the Secretary may require to
carry out the purposes of this section.
(2) Aggregate gross assets
(A) In general
For purposes of paragraph (1), the term "aggregate gross
assets" means the amount of cash and the aggregate adjusted
bases of other property held by the corporation.
(B) Treatment of contributed property
For purposes of subparagraph (A), the adjusted basis of any
property contributed to the corporation (or other property with
a basis determined in whole or in part by reference to the
adjusted basis of property so contributed) shall be determined
as if the basis of the property contributed to the corporation
(immediately after such contribution) were equal to its fair
market value as of the time of such contribution.
(3) Aggregation rules
(A) In general
All corporations which are members of the same
parent-subsidiary controlled group shall be treated as 1
corporation for purposes of this subsection.
(B) Parent-subsidiary controlled group
For purposes of subparagraph (A), the term "parent-subsidiary
controlled group" means any controlled group of corporations as
defined in section 1563(a)(1), except that -
(i) "more than 50 percent" shall be substituted for "at
least 80 percent" each place it appears in section
1563(a)(1), and
(ii) section 1563(a)(4) shall not apply.
(e) Active business requirement
(1) In general
For purposes of subsection (c)(2), the requirements of this
subsection are met by a corporation for any period if during such
period -
(A) at least 80 percent (by value) of the assets of such
corporation are used by such corporation in the active conduct
of 1 or more qualified trades or businesses, and
(B) such corporation is an eligible corporation.
(2) Special rule for certain activities
For purposes of paragraph (1), if, in connection with any
future qualified trade or business, a corporation is engaged in -
(A) start-up activities described in section 195(c)(1)(A),
(B) activities resulting in the payment or incurring of
expenditures which may be treated as research and experimental
expenditures under section 174, or
(C) activities with respect to in-house research expenses
described in section 41(b)(4),
assets used in such activities shall be treated as used in the
active conduct of a qualified trade or business. Any
determination under this paragraph shall be made without regard
to whether a corporation has any gross income from such
activities at the time of the determination.
(3) Qualified trade or business
For purposes of this subsection, the term "qualified trade or
business" means any trade or business other than -
(A) any trade or business involving the performance of
services in the fields of health, law, engineering,
architecture, accounting, actuarial science, performing arts,
consulting, athletics, financial services, brokerage services,
or any trade or business where the principal asset of such
trade or business is the reputation or skill of 1 or more of
its employees,
(B) any banking, insurance, financing, leasing, investing, or
similar business,
(C) any farming business (including the business of raising
or harvesting trees),
(D) any business involving the production or extraction of
products of a character with respect to which a deduction is
allowable under section 613 or 613A, and
(E) any business of operating a hotel, motel, restaurant, or
similar business.
(4) Eligible corporation
For purposes of this subsection, the term "eligible
corporation" means any domestic corporation; except that such
term shall not include -
(A) a DISC or former DISC,
(B) a corporation with respect to which an election under
section 936 is in effect or which has a direct or indirect
subsidiary with respect to which such an election is in effect,
(C) a regulated investment company, real estate investment
trust, REMIC, or FASIT, and
(D) a cooperative.
(5) Stock in other corporations
(A) Look-thru in case of subsidiaries
For purposes of this subsection, stock and debt in any
subsidiary corporation shall be disregarded and the parent
corporation shall be deemed to own its ratable share of the
subsidiary's assets, and to conduct its ratable share of the
subsidiary's activities.
(B) Portfolio stock or securities
A corporation shall be treated as failing to meet the
requirements of paragraph (1) for any period during which more
than 10 percent of the value of its assets (in excess of
liabilities) consists of stock or securities in other
corporations which are not subsidiaries of such corporation
(other than assets described in paragraph (6)).
(C) Subsidiary
For purposes of this paragraph, a corporation shall be
considered a subsidiary if the parent owns more than 50 percent
of the combined voting power of all classes of stock entitled
to vote, or more than 50 percent in value of all outstanding
stock, of such corporation.
(6) Working capital
For purposes of paragraph (1)(A), any assets which -
(A) are held as a part of the reasonably required working
capital needs of a qualified trade or business of the
corporation, or
(B) are held for investment and are reasonably expected to be
used within 2 years to finance research and experimentation in
a qualified trade or business or increases in working capital
needs of a qualified trade or business,
shall be treated as used in the active conduct of a qualified
trade or business. For periods after the corporation has been in
existence for at least 2 years, in no event may more than 50
percent of the assets of the corporation qualify as used in the
active conduct of a qualified trade or business by reason of this
paragraph.
(7) Maximum real estate holdings
A corporation shall not be treated as meeting the requirements
of paragraph (1) for any period during which more than 10 percent
of the total value of its assets consists of real property which
is not used in the active conduct of a qualified trade or
business. For purposes of the preceding sentence, the ownership
of, dealing in, or renting of real property shall not be treated
as the active conduct of a qualified trade or business.
(8) Computer software royalties
For purposes of paragraph (1), rights to computer software
which produces active business computer software royalties
(within the meaning of section 543(d)(1)) shall be treated as an
asset used in the active conduct of a trade or business.
(f) Stock acquired on conversion of other stock
If any stock in a corporation is acquired solely through the
conversion of other stock in such corporation which is qualified
small business stock in the hands of the taxpayer -
(1) the stock so acquired shall be treated as qualified small
business stock in the hands of the taxpayer, and
(2) the stock so acquired shall be treated as having been held
during the period during which the converted stock was held.
(g) Treatment of pass-thru entities
(1) In general
If any amount included in gross income by reason of holding an
interest in a pass-thru entity meets the requirements of
paragraph (2) -
(A) such amount shall be treated as gain described in
subsection (a), and
(B) for purposes of applying subsection (b), such amount
shall be treated as gain from a disposition of stock in the
corporation issuing the stock disposed of by the pass-thru
entity and the taxpayer's proportionate share of the adjusted
basis of the pass-thru entity in such stock shall be taken into
account.
(2) Requirements
An amount meets the requirements of this paragraph if -
(A) such amount is attributable to gain on the sale or
exchange by the pass-thru entity of stock which is qualified
small business stock in the hands of such entity (determined by
treating such entity as an individual) and which was held by
such entity for more than 5 years, and
(B) such amount is includible in the gross income of the
taxpayer by reason of the holding of an interest in such entity
which was held by the taxpayer on the date on which such
pass-thru entity acquired such stock and at all times
thereafter before the disposition of such stock by such
pass-thru entity.
(3) Limitation based on interest originally held by taxpayer
Paragraph (1) shall not apply to any amount to the extent such
amount exceeds the amount to which paragraph (1) would have
applied if such amount were determined by reference to the
interest the taxpayer held in the pass-thru entity on the date
the qualified small business stock was acquired.
(4) Pass-thru entity
For purposes of this subsection, the term "pass-thru entity"
means -
(A) any partnership,
(B) any S corporation,
(C) any regulated investment company, and
(D) any common trust fund.
(h) Certain tax-free and other transfers
For purposes of this section -
(1) In general
In the case of a transfer described in paragraph (2), the
transferee shall be treated as -
(A) having acquired such stock in the same manner as the
transferor, and
(B) having held such stock during any continuous period
immediately preceding the transfer during which it was held (or
treated as held under this subsection) by the transferor.
(2) Description of transfers
A transfer is described in this subsection if such transfer is
-
(A) by gift,
(B) at death, or
(C) from a partnership to a partner of stock with respect to
which requirements similar to the requirements of subsection
(g) are met at the time of the transfer (without regard to the
5-year holding period requirement).
(3) Certain rules made applicable
Rules similar to the rules of section 1244(d)(2) shall apply
for purposes of this section.
(4) Incorporations and reorganizations involving nonqualified
stock
(A) In general
In the case of a transaction described in section 351 or a
reorganization described in section 368, if qualified small
business stock is exchanged for other stock which would not
qualify as qualified small business stock but for this
subparagraph, such other stock shall be treated as qualified
small business stock acquired on the date on which the
exchanged stock was acquired.
(B) Limitation
This section shall apply to gain from the sale or exchange of
stock treated as qualified small business stock by reason of
subparagraph (A) only to the extent of the gain which would
have been recognized at the time of the transfer described in
subparagraph (A) if section 351 or 368 had not applied at such
time. The preceding sentence shall not apply if the stock which
is treated as qualified small business stock by reason of
subparagraph (A) is issued by a corporation which (as of the
time of the transfer described in subparagraph (A)) is a
qualified small business.
(C) Successive application
For purposes of this paragraph, stock treated as qualified
small business stock under subparagraph (A) shall be so treated
for subsequent transactions or reorganizations, except that the
limitation of subparagraph (B) shall be applied as of the time
of the first transfer to which such limitation applied
(determined after the application of the second sentence of
subparagraph (B)).
(D) Control test
In the case of a transaction described in section 351, this
paragraph shall apply only if, immediately after the
transaction, the corporation issuing the stock owns directly or
indirectly stock representing control (within the meaning of
section 368(c)) of the corporation whose stock was exchanged.
(i) Basis rules
For purposes of this section -
(1) Stock exchanged for property
In the case where the taxpayer transfers property (other than
money or stock) to a corporation in exchange for stock in such
corporation -
(A) such stock shall be treated as having been acquired by
the taxpayer on the date of such exchange, and
(B) the basis of such stock in the hands of the taxpayer
shall in no event be less than the fair market value of the
property exchanged.
(2) Treatment of contributions to capital
If the adjusted basis of any qualified small business stock is
adjusted by reason of any contribution to capital after the date
on which such stock was originally issued, in determining the
amount of the adjustment by reason of such contribution, the
basis of the contributed property shall in no event be treated as
less than its fair market value on the date of the contribution.
(j) Treatment of certain short positions
(1) In general
If the taxpayer has an offsetting short position with respect
to any qualified small business stock, subsection (a) shall not
apply to any gain from the sale or exchange of such stock unless
-
(A) such stock was held by the taxpayer for more than 5 years
as of the first day on which there was such a short position,
and
(B) the taxpayer elects to recognize gain as if such stock
were sold on such first day for its fair market value.
(2) Offsetting short position
For purposes of paragraph (1), the taxpayer shall be treated as
having an offsetting short position with respect to any qualified
small business stock if -
(A) the taxpayer has made a short sale of substantially
identical property,
(B) the taxpayer has acquired an option to sell substantially
identical property at a fixed price, or
(C) to the extent provided in regulations, the taxpayer has
entered into any other transaction which substantially reduces
the risk of loss from holding such qualified small business
stock.
For purposes of the preceding sentence, any reference to the
taxpayer shall be treated as including a reference to any person
who is related (within the meaning of section 267(b) or 707(b))
to the taxpayer.
(k) Regulations
The Secretary shall prescribe such regulations as may be
appropriate to carry out the purposes of this section, including
regulations to prevent the avoidance of the purposes of this
section through split-ups, shell corporations, partnerships, or
otherwise.
-SOURCE-
(Added Pub. L. 103-66, title XIII, Sec. 13113(a), Aug. 10, 1993,
107 Stat. 422; amended Pub. L. 104-188, title I, Sec. 1621(b)(7),
Aug. 20, 1996, 110 Stat. 1867; Pub. L. 106-554, Sec. 1(a)(7) [title
I, Sec. 117(a), (b)(2)], Dec. 21, 2000, 114 Stat. 2763, 2763A-604.)
-REFTEXT-
REFERENCES IN TEXT
The date of the enactment of this paragraph, referred to in
subsec. (a)(2)(A), is the date of enactment of Pub. L. 106-554,
which was approved Dec. 21, 2000.
The date of the enactment of the Revenue Reconciliation Act of
1993, referred to in subsecs. (c)(1) and (d)(1)(A), is the date of
enactment of Pub. L. 103-66, which was approved Aug. 10, 1993.
Section 301(d) of the Small Business Investment Act of 1958,
referred to in subsec. (c)(2)(B)(ii), was classified to section
681(d) of Title 15, Commerce and Trade, prior to repeal by Pub. L.
104-208, div. D, title II, Sec. 208(b)(3)(A), Sept. 30, 1996, 110
Stat. 3009-742.
-MISC1-
PRIOR PROVISIONS
A prior section 1202, acts Aug. 16, 1954, ch. 736, 68A Stat. 320;
Oct. 4, 1976, Pub. L. 94-455, title XIX, Sec. 1901(b)(33)(M), 90
Stat. 1802; Nov. 6, 1978, Pub. L. 95-600, title IV, Sec. 402(a), 92
Stat. 2867; Apr. 1, 1980, Pub. L. 96-222, title I, Sec.
104(a)(2)(A), 94 Stat. 214, authorized deduction for capital gains,
prior to repeal by Pub. L. 99-514, title III, Sec. 301(a), (c),
Oct. 22, 1986, 100 Stat. 2216, 2218, applicable to taxable years
beginning after Dec. 31, 1986.
AMENDMENTS
2000 - Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec. 117(b)(2)],
substituted "Partial" for "50-percent" in section catchline.
Subsec. (a). Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec.
117(a)], amended heading and text of subsec. (a) generally. Prior
to amendment, text read as follows: "In the case of a taxpayer
other than a corporation, gross income shall not include 50 percent
of any gain from the sale or exchange of qualified small business
stock held for more than 5 years."
1996 - Subsec. (e)(4)(C). Pub. L. 104-188 substituted "REMIC, or
FASIT" for "or REMIC".
EFFECTIVE DATE OF 2000 AMENDMENT
Amendment by Pub. L. 106-554 applicable to stock acquired after
Dec. 21, 2000, see section 1(a)(7) [title I, Sec. 117(c)] of Pub.
L. 106-554, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 effective Sept. 1, 1997, see section
1621(d) of Pub. L. 104-188, set out as a note under section 26 of
this title.
EFFECTIVE DATE
Section applicable to stock issued after Aug. 10, 1993, see
section 13113(e) of Pub. L. 103-66, set out as an Effective Date of
1993 Amendment note under section 53 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 1, 45D, 57, 172, 642,
643, 691, 871, 1044, 1045, 1223, 1397B, 1400B, 1400F, 6652 of this
title.
-End-
-CITE-
26 USC PART II - TREATMENT OF CAPITAL LOSSES 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART II - TREATMENT OF CAPITAL LOSSES
-HEAD-
PART II - TREATMENT OF CAPITAL LOSSES
-MISC1-
Sec.
1211. Limitation on capital losses.
1212. Capital loss carrybacks and carryovers.
AMENDMENTS
1969 - Pub. L. 91-172, title V, Sec. 512(f)(2), Dec. 30, 1969, 83
Stat. 641, substituted "carrybacks and carryovers" for "carryover"
in item 1212.
-End-
-CITE-
26 USC Sec. 1211 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART II - TREATMENT OF CAPITAL LOSSES
-HEAD-
Sec. 1211. Limitation on capital losses
-STATUTE-
(a) Corporations
In the case of a corporation, losses from sales or exchanges of
capital assets shall be allowed only to the extent of gains from
such sales or exchanges.
(b) Other taxpayers
In the case of a taxpayer other than a corporation, losses from
sales or exchanges of capital assets shall be allowed only to the
extent of the gains from such sales or exchanges, plus (if such
losses exceed such gains) the lower of -
(1) $3,000 ($1,500 in the case of a married individual filing a
separate return), or
(2) the excess of such losses over such gains.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 321; Pub. L. 91-172, title V,
Sec. 513(a), Dec. 30, 1969, 83 Stat. 642; Pub. L. 94-455, title V,
Sec. 501(b)(6), title XIV, Sec. 1401(a), (b), Oct. 4, 1976, 90
Stat. 1559, 1731; Pub. L. 95-30, title I, Sec. 102(b)(14), May 23,
1977, 91 Stat. 138; Pub. L. 99-514, title III, Sec. 301(b)(10),
Oct. 22, 1986, 100 Stat. 2217.)
-MISC1-
AMENDMENTS
1986 - Subsec. (b). Pub. L. 99-514 amended subsec. (b) generally,
substituting present provisions for provisions which had declared
in: par. (1), general rule for limitation on capital losses for
taxpayer other than corporation; in par. (2), meaning of term
"applicable amount"; and in par. (3), rule relating to computation
of taxable income.
1977 - Subsec. (b)(1)(A). Pub. L. 95-30 inserted "reduced (but
not below zero) by the zero bracket amount" after "taxable year".
1976 - Subsec. (b)(1)(B). Pub. L. 94-455, Sec. 1401(a),
substituted "the applicable amount" for "$1,000".
Subsec. (b)(2). Pub. L. 94-455, Sec. 1401(b), substituted
provision relating to "applicable amount" for prior provision
limiting amount of capital losses for married individuals and
reading "In the case of a husband or wife who files a separate
return, the amount specified in paragraph (1)(B) shall be $500 in
lieu of $1,000."
Subsec. (b)(3). Pub. L. 94-455, Sec. 501(b)(6), struck out last
sentence "If the taxpayer elects to pay the optional tax imposed by
section 3, 'taxable income' as used in this subsection shall read
as 'adjusted gross income'."
1969 - Subsec. (b). Pub. L. 91-172 provided for only 50 percent
of an individual's long-term capital losses to be offset against
his ordinary income up to the $1,000 limit although short-term
capital losses continue to be fully deductible within the $1,000
limit and the deduction of capital losses against ordinary income
for married persons filing separate returns to be limited to $500
for each spouse rather than the $1,000 formerly allowed.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, see section 301(c) of Pub. L. 99-514, set out
as a note under section 62 of this title.
EFFECTIVE DATE OF 1977 AMENDMENT
Amendment by Pub. L. 95-30 applicable to taxable years beginning
after Dec. 31, 1976, see section 106(a) of Pub. L. 95-30, set out
as a note under section 1 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 501(b)(6) of Pub. L. 94-455 applicable to
taxable years beginning after Dec. 31, 1975, see section 508 of
Pub. L. 94-455, set out as a note under section 3 of this title.
Section 1401(c) of Pub. L. 94-455 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1976."
EFFECTIVE DATE OF 1969 AMENDMENT
Section 513(d) of Pub. L. 91-172 provided that: "The amendments
made by this section [amending this section and sections 1212 and
1222 of this title] shall apply to taxable years beginning after
December 31, 1969."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 32, 165, 221, 641, 691,
1212, 1222, 1231 of this title.
-End-
-CITE-
26 USC Sec. 1212 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART II - TREATMENT OF CAPITAL LOSSES
-HEAD-
Sec. 1212. Capital loss carrybacks and carryovers
-STATUTE-
(a) Corporations
(1) In general
If a corporation has a net capital loss for any taxable year
(hereinafter in this paragraph referred to as the "loss year"),
the amount thereof shall be -
(A) a capital loss carryback to each of the 3 taxable years
preceding the loss year, but only to the extent -
(i) such loss is not attributable to a foreign
expropriation capital loss, and
(ii) the carryback of such loss does not increase or
produce a net operating loss (as defined in section 172(c))
for the taxable year to which it is being carried back;
(B) except as provided in subparagraph (C), a capital loss
carryover to each of the 5 taxable years succeeding the loss
year; and
(C) a capital loss carryover -
(i) in the case of a regulated investment company (as
defined in section 851) to each of the 8 taxable years
succeeding the loss year, and
(ii) to the extent such loss is attributable to a foreign
expropriation capital loss, to each of the 10 taxable years
succeeding the loss year.
and shall be treated as a short-term capital loss in each such
taxable year. The entire amount of the net capital loss for any
taxable year shall be carried to the earliest of the taxable
years to which such loss may be carried, and the portion of such
loss which shall be carried to each of the other taxable years to
which such loss may be carried shall be the excess, if any, of
such loss over the total of the capital gain net income for each
of the prior taxable years to which such loss may be carried. For
purposes of the preceding sentence, the capital gain net income
for any such prior taxable year shall be computed without regard
to the net capital loss for the loss year or for any taxable year
thereafter. In the case of any net capital loss which cannot be
carried back in full to a preceding taxable year by reason of
clause (ii) of subparagraph (A), the capital gain net income for
such prior taxable year shall in no case be treated as greater
than the amount of such loss which can be carried back to such
preceding taxable year upon the application of such clause (ii).
(2) Definitions and special rules
(A) Foreign expropriation capital loss defined
For purposes of this subsection, the term "foreign
expropriation capital loss" means, for any taxable year, the
sum of the losses taken into account in computing the net
capital loss for such year which are -
(i) losses sustained directly by reason of the
expropriation, intervention, seizure, or similar taking of
property by the government of any foreign country, any
political subdivision thereof, or any agency or
instrumentality of the foregoing, or
(ii) losses (treated under section 165(g)(1) as losses from
the sale or exchange of capital assets) from securities which
become worthless by reason of the expropriation,
intervention, seizure, or similar taking of property by the
government of any foreign country, any political subdivision
thereof, or any agency or instrumentality of the foregoing.
(B) Portion of loss attributable to foreign expropriation
capital loss
For purposes of paragraph (1), the portion of any net capital
loss for any taxable year attributable to a foreign
expropriation capital loss is the amount of the foreign
expropriation capital loss for such year (but not in excess of
the net capital loss for such year).
(C) Priority of application
For purposes of paragraph (1), if a portion of a net capital
loss for any taxable year is attributable to a foreign
expropriation capital loss, such portion shall be considered to
be a separate net capital loss for such year to be applied
after the other portion of such net capital loss.
(3) Special rules on carrybacks
A net capital loss of a corporation shall not be carried back
under paragraph (1)(A) to a taxable year -
(A) for which it is a foreign personal holding company (as
defined in section 552);
(B) for which it is a regulated investment company (as
defined in section 851);
(C) for which it is a real estate investment trust (as
defined in section 856); or
(D) for which an election made by it under section 1247 is
applicable (relating to election by foreign investment
companies to distribute income currently).
(b) Other taxpayers
(1) In general
If a taxpayer other than a corporation has a net capital loss
for any taxable year -
(A) the excess of the net short-term capital loss over the
net long-term capital gain for such year shall be a short-term
capital loss in the succeeding taxable year, and
(B) the excess of the net long-term capital loss over the net
short-term capital gain for such year shall be a long-term
capital loss in the succeeding taxable year.
(2) Treatment of amounts allowed under section 1211(b)(1) or (2)
(A) In general
For purposes of determining the excess referred to in
subparagraph (A) or (B) of paragraph (1), there shall be
treated as a short-term capital gain in the taxable year an
amount equal to the lesser of -
(i) the amount allowed for the taxable year under paragraph
(1) or (2) of section 1211(b), or
(ii) the adjusted taxable income for such taxable year.
(B) Adjusted taxable income
For purposes of subparagraph (A), the term "adjusted taxable
income" means taxable income increased by the sum of -
(i) the amount allowed for the taxable year under paragraph
(1) or (2) of section 1211(b), and
(ii) the deduction allowed for such year under section 151
or any deduction in lieu thereof.
For purposes of the preceding sentence, any excess of the
deductions allowed for the taxable year over the gross income
for such year shall be taken into account as negative taxable
income.
(c) Carryback of losses from section 1256 contracts to offset prior
gains from such contracts
(1) In general
If a taxpayer (other than a corporation) has a net section 1256
contracts loss for the taxable year and elects to have this
subsection apply to such taxable year, the amount of such net
section 1256 contracts loss -
(A) shall be a carryback to each of the 3 taxable years
preceding the loss year, and
(B) to the extent that, after the application of paragraphs
(2) and (3), such loss is allowed as a carryback to any such
preceding taxable year -
(i) 40 percent of the amount so allowed shall be treated as
a short-term capital loss from section 1256 contracts, and
(ii) 60 percent of the amount so allowed shall be treated
as a long-term capital loss from section 1256 contracts.
(2) Amount carried to each taxable year
The entire amount of the net section 1256 contracts loss for
any taxable year shall be carried to the earliest of the taxable
years to which such loss may be carried back under paragraph (1).
The portion of such loss which shall be carried to each of the 2
other taxable years to which such loss may be carried back shall
be the excess (if any) of such loss over the portion of such loss
which, after the application of paragraph (3), was allowed as a
carryback for any prior taxable year.
(3) Amount which may be used in any prior taxable year
An amount shall be allowed as a carryback under paragraph (1)
to any prior taxable year only to the extent -
(A) such amount does not exceed the net section 1256 contract
gain for such year, and
(B) the allowance of such carryback does not increase or
produce a net operating loss (as defined in section 172(c)) for
such year.
(4) Net section 1256 contracts loss
For purposes of paragraph (1), the term "net section 1256
contracts loss" means the lesser of -
(A) the net capital loss for the taxable year determined by
taking into account only gains and losses from section 1256
contracts, or
(B) the sum of the amounts which, but for paragraph (6)(A),
would be treated as capital losses in the succeeding taxable
year under subparagraphs (A) and (B) of subsection (b)(1).
(5) Net section 1256 contract gain
For purposes of paragraph (1) -
(A) In general
The term "net section 1256 contract gain" means the lesser of
-
(i) the capital gain net income for the taxable year
determined by taking into account only gains and losses from
section 1256 contracts, or
(ii) the capital gain net income for the taxable year.
(B) Special rule
The net section 1256 contract gain for any taxable year
before the loss year shall be computed without regard to the
net section 1256 contracts loss for the loss year or for any
taxable year thereafter.
(6) Coordination with carryforward provisions of subsection
(b)(1)
(A) Carryforward amount reduced by amount used as carryback
For purposes of applying subsection (b)(1), if any portion of
the net section 1256 contracts loss for any taxable year is
allowed as a carryback under paragraph (1) to any preceding
taxable year -
(i) 40 percent of the amount allowed as a carryback shall
be treated as a short-term capital gain for the loss year,
and
(ii) 60 percent of the amount allowed as a carryback shall
be treated as a long-term capital gain for the loss year.
(B) Carryover loss retains character as attributable to section
1256 contract
Any amount carried forward as a short-term or long-term
capital loss to any taxable year under subsection (b)(1) (after
the application of subparagraph (A)) shall, to the extent
attributable to losses from section 1256 contracts, be treated
as loss from section 1256 contracts for such taxable year.
(7) Other definitions and special rules
For purposes of this subsection -
(A) Section 1256 contract
The term "section 1256 contract" means any section 1256
contract (as defined in section 1256(b)) to which section 1256
applies.
(B) Exclusion for estates and trusts
This subsection shall not apply to any estate or trust.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 321; Pub. L. 88-272, title II,
Sec. 230(a), Feb. 26, 1964, 78 Stat. 99; Pub. L. 88-571, Sec. 7(a),
Sept. 2, 1964, 78 Stat. 860; Pub. L. 91-172, title V, Secs. 512
(a), (b), (f)(1), 513(b), Dec. 30, 1969, 83 Stat. 638, 639, 641,
642; Pub. L. 94-455, title XIV, Sec. 1403 (a), title XIX, Sec.
1901(b)(33)(O), Oct. 4, 1976, 90 Stat. 1733, 1802; Pub. L. 95-600,
title VII, Sec. 703(k), Nov. 6, 1978, 92 Stat. 2942; Pub. L. 97-34,
title V, Sec. 504, Aug. 13, 1981, 95 Stat. 330; Pub. L. 97-354,
Sec. 5(a)(35), Oct. 19, 1982, 96 Stat. 1695; Pub. L. 97-448, title
I, Sec. 105(c)(7), Jan. 12, 1983, 96 Stat. 2387; Pub. L. 98-369,
div. A, title I, Sec. 102(e)(3), title X, Sec. 1002(a), July 18,
1984, 98 Stat. 624, 1012; Pub. L. 99-514, title III, Sec.
301(b)(11), title XVIII, Sec. 1899A(67), Oct. 22, 1986, 100 Stat.
2218, 2962; Pub. L. 100-647, title I, Sec. 1003(a)(3), Nov. 10,
1988, 102 Stat. 3382.)
-MISC1-
AMENDMENTS
1988 - Subsec. (b)(2). Pub. L. 100-647 substituted "Treatment of
amounts allowed under section 1211(b)(1) or (2)" for "Special rule"
as heading and amended text generally. Prior to amendment, text
read as follows: "For purposes of determining the excess referred
to in subparagraph (A) or (B) of paragraph (1), an amount equal to
the amount allowed for the taxable year under paragraph (1) or (2)
of section 1211(b) shall be treated as a short-term capital gain in
such year."
1986 - Subsec. (b)(2). Pub. L. 99-514, Sec. 301(b)(11), amended
par. (2) generally. Prior to amendment, par. (2), special rules,
read as follows:
"(A) For purposes of determining the excess referred to in
paragraph (1)(A), an amount equal to the amount allowed for the
taxable year under section 1211(b)(1)(A), (B), or (C) shall be
treated as a short-term capital gain in such year.
"(B) For purposes of determining the excess referred to in
paragraph (1)(B), an amount equal to the sum of -
"(i) the amount allowed for the taxable year under section
1211(b)(1)(A), (B), or (C), and
"(ii) the excess of the amount described in clause (i) over the
net short-term capital loss (determined without regard to this
subsection) for such year,
shall be treated as a short-term capital gain in such year."
Subsec. (c)(6)(B), (7)(A). Pub. L. 99-514, Sec. 1899A(67),
amended directory language of Pub. L. 98-369, Sec. 102(e)(3)(C),
resulting in amendment of subsec. (c)(6)(B). See 1984 Amendment
note below.
1984 - Subsec. (b)(3). Pub. L. 98-369, Sec. 1002(a), struck out
par. (3) which read as follows: "In the case of any amount which,
under paragraph (1) and section 1211(b) (as in effect for taxable
years beginning before January 1, 1970), is treated as a capital
loss in the first taxable year beginning after December 31, 1969,
paragraph (1) and section 1211(b) (as in effect for taxable years
beginning before January 1, 1970) shall apply (and paragraph (1)
and section 1211(b) as in effect for taxable years beginning after
December 31, 1969, shall not apply) to the extent such amount
exceeds the total of any net capital gains (determined without
regard to this subsection) of taxable years beginning after
December 31, 1969."
Subsec. (c). Pub. L. 98-369, Sec. 102(e)(3)(A), (B), substituted
"net section 1256 contracts loss" for "net commodity futures loss"
and "section 1256 contracts" for "regulated futures contracts"
wherever appearing.
Subsec. (c)(3)(A), (5). Pub. L. 98-369, Sec. 102(e)(3)(D),
substituted "net section 1256 contract gain" for "net commodity
futures gain" wherever appearing.
Subsec. (c)(6)(B), (7)(A). Pub. L. 98-369, Sec. 102(e)(3)(C), as
amended by Pub. L. 99-514, Sec. 1899A(67), substituted "section
1256 contract" for "regulated futures contract" wherever appearing.
1983 - Subsec. (c)(4)(A). Pub. L. 97-448 struck out "and
positions to which section 1256 applies" after "losses from
regulated futures contracts".
1982 - Subsec. (a)(3), (4). Pub. L. 97-354 struck out par. (3)
relating to electing small business corporations, and redesignated
par. (4) as (3).
1981 - Subsec. (c). Pub. L. 97-34 added subsec. (c).
1978 - Subsec. (a)(1)(C)(ii). Pub. L. 95-600 substituted
"succeeding the loss year" for "exceeding the loss year".
1976 - Subsec. (a)(1). Pub. L. 94-455, Secs. 1403(a),
1901(b)(33)(O), in subpar. (B) inserted introductory text "except
as provided in subparagraph (C)," and struck out "(10) taxable
years to the extent such loss is attributable to a foreign
expropriation capital loss)" after "5 taxable years" and added
subpar. (C), and substituted "capital gain net income" for "net
capital gains", "net capital gain" and "net capital gain" in last
three sentences, respectively.
1969 - Pub. L. 91-172, Sec. 512(f)(1), substituted "carrybacks
and carryovers" for "carryover" in section catchline.
Subsec. (a)(1). Pub. L. 91-172, Sec. 512(a), provided for a
3-year capital loss carryback for corporations, not available for
foreign expropriation capital losses for which a special 10-year
carryforward is presently available, in addition to the 5-year
capital loss carryforward presently allowed corporations, to the
extent the carryback of such loss does not increase or produce a
net operating loss for the taxable year to which it is being
carried back.
Subsec. (a)(3), (4). Pub. L. 91-172, Sec. 512(b), added pars. (3)
and (4).
Subsec. (b). Pub. L. 91-172, Sec. 513(b), struck out reference to
Dec. 31, 1963, struck out determination of a short-term capital
gain as an amount equal to the excess allowed for the taxable year
under former section 1211(b) over the gains from sales or exchanges
of capital assets, struck out par. (2) treating as a short-term
capital loss in the first taxable year beginning after Dec. 31,
1963, any amount which is treated as a short-term capital loss in
such year under this subchapter as in effect immediately before the
enactment of the Revenue Act of 1964, added new par. (2) dealing
with special rules for determining the excesses referred to in par.
(1)(A) and par. (1)(B) and added par. (3).
1964 - Subsec. (a). Pub. L. 88-571 provided that if any portion
of a net capital loss is attributable to a foreign expropriation
capital loss, such portion shall be a short-term capital loss in
each of the 10 succeeding taxable years, defined foreign
expropriation capital loss, stated what portion of loss is
attributable to foreign expropriation capital loss and the priority
of application of the net capital loss, and struck out provisions
that net capital losses for taxable years beginning before Oct. 20,
1951, were to be determined under the applicable law relating to
the computation of capital gains and losses in effect before such
date.
Pub. L. 88-272 designated existing provisions as subsec. (a),
limited such subsection to corporations, and added subsec. (b).
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 301(b)(11) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 301(c) of
Pub. L. 99-514, set out as a note under section 62 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 102(e)(3) of Pub. L. 98-369 applicable to
positions established after July 18, 1984, in taxable years after
that date, except as otherwise provided, see section 102(f), (g) of
Pub. L. 98-369, set out as a note under section 1256 of this title.
Section 1002(b) of Pub. L. 98-369 provided that: "The repeal made
by subsection (a) [amending this section] shall apply to taxable
years beginning after December 31, 1986."
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective, except as otherwise
provided, as if it had been included in the provision of the
Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-354 applicable to taxable years beginning
after Dec. 31, 1982, see section 6(a) of Pub. L. 97-354, set out as
an Effective Date note under section 1361 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97-34 applicable to property acquired and
positions established by the taxpayer after June 23, 1981, in
taxable years ending after such date, and applicable when so
elected with respect to property held on June 23, 1981, see section
508 of Pub. L. 97-34, set out as an Effective Date note under
section 1092 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-600 effective Oct. 4, 1976, see section
703(r) of Pub. L. 95-600, set out as a note under section 46 of
this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1403(b) of Pub. L. 94-455, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by this section [amending this section] shall apply
to loss years (within the meaning of section 1212(a)(1) of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954]) ending on or
after January 1, 1970."
Amendment by section 1901(b)(33)(O) of Pub. L. 94-455 applicable
with respect to taxable years beginning after Dec. 31, 1976, see
section 1901(d) of Pub. L. 94-455, set out as a note under section
2 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Section 512(g) of Pub. L. 91-172 provided that: "The amendments
made by this section [amending this section and sections 246, 381,
481, 535, 1314, 6411, 6501, 6511, 6601, and 6611 of this title]
shall apply with respect to net capital losses sustained in taxable
years beginning after December 31, 1969."
Amendment by section 513(b) of Pub. L. 91-172 applicable to
taxable years beginning after Dec. 31, 1969, see section 513(d) of
Pub. L. 91-172, set out as a note under section 1211 of this title.
EFFECTIVE DATE OF 1964 AMENDMENTS
Section 7(b) of Pub. L. 88-571, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendment made by subsection (a) [amending this section] shall
apply with respect to net capital losses (to the extent
attributable to foreign expropriation capital losses, as defined in
section 1212(a)(2)(A) of the Internal Revenue Code of 1986
[formerly I.R.C. 1954]) sustained in taxable years ending after
December 31, 1958."
Section 230(c) of Pub. L. 88-272 provided that: "The amendments
made by this section [amending this section and section 1222 of
this title] shall apply to taxable years beginning after December
31, 1963."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
ELECTION NOT TO CARRYBACK CERTAIN NET CAPITAL LOSSES
Pub. L. 91-688, Sec. 3, Jan. 12, 1971, 84 Stat. 2073, as amended
by Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided
that:
"(a) For purposes of applying section 1212(a) of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954] (as amended by section
512 of the Tax Reform Act of 1969) in the case of a corporation
which makes an election under subsection (b), any net capital loss
sustained in a taxable year beginning after December 31, 1969, may
not be carried back to any taxable year beginning before January 1,
1970, for which it was subject to taxation under section 802 of
such Code [section 802 of this title], if the carryback of such
loss would result in an increase in such corporation's income tax
liability for any such taxable year.
"(b) An election to have the provisions of subsection (a) apply
shall be made by a corporation -
"(1) in such form and manner as the Secretary of the Treasury
or his delegate may prescribe, and
"(2) not later than the time prescribed by law for filing a
claim for credit or refund of overpayment of income tax for the
first taxable year beginning after December 31, 1969, in which
such corporation sustains a net capital loss.
"(c) The Secretary of the Treasury or his delegate shall
prescribe such regulations as he determines necessary to carry out
the purposes of this section."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 1, 108, 165, 170, 246,
381, 383, 481, 514, 535, 613A, 642, 805, 822, 832, 871, 877, 904,
1022, 1222, 1247, 1314, 1341, 1351, 1398, 1503, 6411, 6655 of this
title.
-End-
-CITE-
26 USC PART III - GENERAL RULES FOR DETERMINING CAPITAL
GAINS AND LOSSES 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART III - GENERAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
-HEAD-
PART III - GENERAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
-MISC1-
Sec.
1221. Capital asset defined.
1222. Other items relating to capital gains and losses.(!1)
1223. Holding period of property.
-FOOTNOTE-
(!1) So in original. Does not conform to section catchline.
-End-
-CITE-
26 USC Sec. 1221 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART III - GENERAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
-HEAD-
Sec. 1221. Capital asset defined
-STATUTE-
(a) In general
For purposes of this subtitle, the term "capital asset" means
property held by the taxpayer (whether or not connected with his
trade or business), but does not include -
(1) stock in trade of the taxpayer or other property of a kind
which would properly be included in the inventory of the taxpayer
if on hand at the close of the taxable year, or property held by
the taxpayer primarily for sale to customers in the ordinary
course of his trade or business;
(2) property, used in his trade or business, of a character
which is subject to the allowance for depreciation provided in
section 167, or real property used in his trade or business;
(3) a copyright, a literary, musical, or artistic composition,
a letter or memorandum, or similar property, held by -
(A) a taxpayer whose personal efforts created such property,
(B) in the case of a letter, memorandum, or similar property,
a taxpayer for whom such property was prepared or produced, or
(C) a taxpayer in whose hands the basis of such property is
determined, for purposes of determining gain from a sale or
exchange, in whole or part by reference to the basis of such
property in the hands of a taxpayer described in subparagraph
(A) or (B);
(4) accounts or notes receivable acquired in the ordinary
course of trade or business for services rendered or from the
sale of property described in paragraph (1);
(5) a publication of the United States Government (including
the Congressional Record) which is received from the United
States Government or any agency thereof, other than by purchase
at the price at which it is offered for sale to the public, and
which is held by -
(A) a taxpayer who so received such publication, or
(B) a taxpayer in whose hands the basis of such publication
is determined, for purposes of determining gain from a sale or
exchange, in whole or in part by reference to the basis of such
publication in the hands of a taxpayer described in
subparagraph (A);
(6) any commodities derivative financial instrument held by a
commodities derivatives dealer, unless -
(A) it is established to the satisfaction of the Secretary
that such instrument has no connection to the activities of
such dealer as a dealer, and
(B) such instrument is clearly identified in such dealer's
records as being described in subparagraph (A) before the close
of the day on which it was acquired, originated, or entered
into (or such other time as the Secretary may by regulations
prescribe);
(7) any hedging transaction which is clearly identified as such
before the close of the day on which it was acquired, originated,
or entered into (or such other time as the Secretary may by
regulations prescribe); or
(8) supplies of a type regularly used or consumed by the
taxpayer in the ordinary course of a trade or business of the
taxpayer.
(b) Definitions and special rules
(1) Commodities derivative financial instruments
For purposes of subsection (a)(6) -
(A) Commodities derivatives dealer
The term "commodities derivatives dealer" means a person
which (!1) regularly offers to enter into, assume, offset,
assign, or terminate positions in commodities derivative
financial instruments with customers in the ordinary course of
a trade or business.
(B) Commodities derivative financial instrument
(i) In general
The term "commodities derivative financial instrument"
means any contract or financial instrument with respect to
commodities (other than a share of stock in a corporation, a
beneficial interest in a partnership or trust, a note, bond,
debenture, or other evidence of indebtedness, or a section
1256 contract (as defined in section 1256(b))), the value or
settlement price of which is calculated by or determined by
reference to a specified index.
(ii) Specified index
The term "specified index" means any one or more or any
combination of -
(I) a fixed rate, price, or amount, or
(II) a variable rate, price, or amount,
which is based on any current, objectively determinable
financial or economic information with respect to commodities
which is not within the control of any of the parties to the
contract or instrument and is not unique to any of the
parties' circumstances.
(2) Hedging transaction
(A) In general
For purposes of this section, the term "hedging transaction"
means any transaction entered into by the taxpayer in the
normal course of the taxpayer's trade or business primarily -
(i) to manage risk of price changes or currency
fluctuations with respect to ordinary property which is held
or to be held by the taxpayer,
(ii) to manage risk of interest rate or price changes or
currency fluctuations with respect to borrowings made or to
be made, or ordinary obligations incurred or to be incurred,
by the taxpayer, or
(iii) to manage such other risks as the Secretary may
prescribe in regulations.
(B) Treatment of nonidentification or improper identification
of hedging transactions
Notwithstanding subsection (a)(7), the Secretary shall
prescribe regulations to properly characterize any income,
gain, expense, or loss arising from a transaction -
(i) which is a hedging transaction but which was not
identified as such in accordance with subsection (a)(7), or
(ii) which was so identified but is not a hedging
transaction.
(3) Regulations
The Secretary shall prescribe such regulations as are
appropriate to carry out the purposes of paragraph (6) and (7) of
subsection (a) in the case of transactions involving related
parties.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 321; Pub. L. 91-172, title V,
Sec. 514(a), Dec. 30, 1969, 83 Stat. 643; Pub. L. 94-455, title
XIX, Sec. 1901(c)(9), title XXI, Sec. 2132(a), Oct. 4, 1976, 90
Stat. 1803, 1925; Pub. L. 97-34, title V, Sec. 505(a), Aug. 13,
1981, 95 Stat. 331; Pub. L. 106-170, title V, Sec. 532(a), Dec. 17,
1999, 113 Stat. 1928; Pub. L. 107-16, title V, Sec. 542(e)(2)(A),
June 7, 2001, 115 Stat. 85; Pub. L. 107-147, title IV, Sec.
417(20), Mar. 9, 2002, 116 Stat. 57.)
-STATAMEND-
AMENDMENT OF SUBSECTION (A)(3)(C)
Pub. L. 107-16, title V, Sec. 542(e)(2)(A), (f)(1), title IX,
Sec. 901, June 7, 2001, 115 Stat. 85, 86, 150, provided that,
applicable to estates of decedents dying after Dec. 31, 2009,
subsection (a)(3)(C) of this section is temporarily amended by
inserting "(other than by reason of section 1022)" after "is
determined". See Effective and Termination Dates of 2001 Amendment
note below.
-MISC1-
AMENDMENTS
2002 - Subsec. (b)(1)(B)(i). Pub. L. 107-147 substituted
"1256(b)))" for "1256(b))".
1999 - Pub. L. 106-170 designated existing provisions as subsec.
(a), inserted heading, and added pars. (6) to (8) and subsec. (b).
1981 - Pars. (5), (6). Pub. L. 97-34 redesignated par. (6) as (5)
and struck out former par. (5), which excluded from definition of
"capital asset" an obligation of the United States or any of its
possessions, or of a State or any political subdivision thereof, or
of the District of Columbia, issued on or after March 1, 1941, on a
discount basis and payable without interest at a fixed maturity
date not exceeding one year from the date of issue, and is covered
by section 1232(a)(4)(B) of this title.
1976 - Par. (5). Pub. L. 94-455, Sec. 1901(c)(9), struck out "or
Territory," after "State".
Par. (6). Pub. L. 94-455, Sec. 2132(a), added par. (6).
1969 - Par. (3). Pub. L. 91-172 inserted reference to a letter or
memorandum, added subpar. (B) dealing with a letter or memorandum,
and redesignated former subpar. (B) as (C).
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENT
Amendment by Pub. L. 107-16 applicable to estates of decedents
dying after Dec. 31, 2009, see section 542(f)(1) of Pub. L. 107-16,
set out as a note under section 121 of this title.
Amendment by Pub. L. 107-16 inapplicable to estates of decedents
dying, gifts made, or generation skipping transfers, after Dec. 31,
2010, and the Internal Revenue Code of 1986 to be applied and
administered to such estates, gifts, and transfers as if such
amendment had never been enacted, see section 901 of Pub. L.
107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-170 applicable to any instrument held,
acquired, or entered into, any transaction entered into, and
supplies held or acquired on or after Dec. 17, 1999, see section
532(d) of Pub. L. 106-170, set out as a note under section 170 of
this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97-34 applicable to property acquired and
positions established by the taxpayer after June 23, 1981, in
taxable years ending after such date, and applicable when so
elected with respect to property held on June 23, 1981, see section
508 of Pub. L. 97-34, set out as an Effective Date note under
section 1092 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 2132(b) of Pub. L. 94-455 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
sales, exchanges, and contributions made after the date of
enactment of this Act [Oct. 4, 1976]."
EFFECTIVE DATE OF 1969 AMENDMENT
Section 514(c) of Pub. L. 91-172 provided that: "The amendments
made by this section [amending this section and sections 341 and
1231 of this title] shall apply to sales and other dispositions
occurring after July 25, 1969."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 170, 198, 263A, 267, 367,
543, 707, 751, 775, 818, 856, 857, 864, 865, 954, 995, 1092, 1223,
1231, 1234, 1234B, 1248, 1256, 1362, 1397C, 4662, 7704 of this
title.
-FOOTNOTE-
(!1) So in original. Probably should be "who".
-End-
-CITE-
26 USC Sec. 1222 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART III - GENERAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
-HEAD-
Sec. 1222. Other terms relating to capital gains and losses
-STATUTE-
For purposes of this subtitle -
(1) Short-term capital gain
The term "short-term capital gain" means gain from the sale or
exchange of a capital asset held for not more than 1 year, if and
to the extent such gain is taken into account in computing gross
income.
(2) Short-term capital loss
The term "short-term capital loss" means loss from the sale or
exchange of a capital asset held for not more than 1 year, if and
to the extent that such loss is taken into account in computing
taxable income.
(3) Long-term capital gain
The term "long-term capital gain" means gain from the sale or
exchange of a capital asset held for more than 1 year, if and to
the extent such gain is taken into account in computing gross
income.
(4) Long-term capital loss
The term "long-term capital loss" means loss from the sale or
exchange of a capital asset held for more than 1 year, if and to
the extent that such loss is taken into account in computing
taxable income.
(5) Net short-term capital gain
The term "net short-term capital gain" means the excess of
short-term capital gains for the taxable year over the short-term
capital losses for such year.
(6) Net short-term capital loss
The term "net short-term capital loss" means the excess of
short-term capital losses for the taxable year over the
short-term capital gains for such year.
(7) Net long-term capital gain
The term "net long-term capital gain" means the excess of
long-term capital gains for the taxable year over the long-term
capital losses for such year.
(8) Net long-term capital loss
The term "net long-term capital loss" means the excess of
long-term capital losses for the taxable year over the long-term
capital gains for such year.
(9) Capital gain net income
The term "capital gain net income" means the excess of the
gains from sales or exchanges of capital assets over the losses
from such sales or exchanges.
(10) Net capital loss
The term "net capital loss" means the excess of the losses from
sales or exchanges of capital assets over the sum allowed under
section 1211. In the case of a corporation, for the purpose of
determining losses under this paragraph, amounts which are
short-term capital losses under section 1212 shall be excluded.
(11) Net capital gain
The term "net capital gain" means the excess of the net
long-term capital gain for the taxable year over the net
short-term capital loss for such year.
For purposes of this subtitle, in the case of futures transactions
in any commodity subject to the rules of a board of trade or
commodity exchange, the length of the holding period taken into
account under this section or under any other section amended by
section 1402 of the Tax Reform Act of 1976 shall be determined
without regard to the amendments made by subsections (a) and (b) of
such section 1402.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 322; Pub. L. 88-272, title II,
Sec. 230(b), Feb. 26, 1964, 78 Stat. 100; Pub. L. 91-172, title V,
Secs. 511(a), 513(c), Dec. 30, 1969, 83 Stat. 635, 643; Pub. L.
94-455, title XIV, Sec. 1402(a)(1), (2), (d), title XIX, Sec.
1901(a)(136), Oct. 4, 1976, 90 Stat. 1731, 1733, 1787; Pub. L.
98-369, div. A, title X, Sec. 1001(a), (e), July 18, 1984, 98 Stat.
1011, 1012.)
-REFTEXT-
REFERENCES IN TEXT
The Tax Reform Act of 1976, referred to in last sentence, is Pub.
L. 94-455, Oct. 4, 1976, 90 Stat. 1520, as amended. For complete
classification of this Act and of section 1402 of such Act to the
Code, see Tables.
-MISC1-
AMENDMENTS
1984 - Pars. (1) to (4). Pub. L. 98-369 substituted "6 months"
for "1 year", applicable to property acquired after June 22, 1984,
and before Jan. 1, 1988. See Effective Date of 1984 Amendment note
below.
1976 - Pars. (1) to (4). Pub. L. 94-455, Sec. 1402(a)(2),
provided that "9 months" would be changed to "1 year".
Pub. L. 94-455, Sec. 1402(a)(1), provided that "6 months" would
be changed to "9 months" for taxable years beginning in 1977.
Par. (9). Pub. L. 94-455, Sec. 1901(a)(136)(A), substituted
"Capital gain net income" and "capital gain net income" for "Net
capital gain" and "net capital gain" in heading and text.
Par. (11). Pub. L. 94-455, Sec. 1901(a)(136)(B), substituted "Net
capital gain" and "net capital gain" for "Net section 1201 gain"
and "net section 1201 gain" in heading and text.
Pub. L. 94-455, Sec. 1402(d), inserted sentence at end relating
to length of holding period in case of futures transactions in
commodities.
1969 - Par. (9). Pub. L. 91-172, Sec. 513(c), substituted "The"
for "In the case of a corporation, the".
Par. (11). Pub. L. 91-172, Sec. 511(a), added par. (11).
1964 - Pars. (9), (10). Pub. L. 88-272 struck out provisions from
par. (9) relating to taxpayers other than corporations, and
inserted "In the case of a corporation" in par. (10).
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to property acquired after
June 22, 1984, and before Jan. 1, 1988, see section 1001(e) of Pub.
L. 98-369, set out as a note under section 166 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1402(a)(1) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning in 1977.
Section 1402(a)(2) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning after Dec. 31, 1977.
Amendment by section 1901(a)(136) of Pub. L. 94-455 applicable
with respect to taxable years beginning after Dec. 31, 1976, see
section 1901(d) of Pub. L. 94-455, set out as a note under section
2 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by section 513(c) of Pub. L. 91-172 applicable to
taxable years beginning after Dec. 31, 1969, see section 513(d) of
Pub. L. 91-172, set out as a note under section 1211 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272 applicable to taxable years beginning
after Dec. 31, 1963, see section 230(c) of Pub. L. 88-272, set out
as a note under section 1212 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 32, 265, 4981, 4982 of
this title.
-End-
-CITE-
26 USC Sec. 1223 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter P - Capital Gains and Losses
PART III - GENERAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
-HEAD-
Sec. 1223. Holding period of property
-STATUTE-
For purposes of this subtitle -
(1) In determining the period for which the taxpayer has held
property received in an exchange, there shall be included the
period for which he held the property exchanged if, under this
chapter, the property has, for the purpose of determining gain or
loss from a sale or exchange, the same basis in whole or in part
in his hands as the property exchanged, and, in the case of such
exchanges after March 1, 1954, the property exchanged at the time
of such exchange was a capital asset as defined in section 1221
or property described in section 1231. For purposes of this
paragraph -
(A) an involuntary conversion described in section 1033 shall
be considered an exchange of the property converted for the
property acquired, and
(B) a distribution to which section 355 (or so much of
section 356 as relates to section 355) applies shall be treated
as an exchange.
(2) In determining the period for which the taxpayer has held
property however acquired there shall be included the period for
which such property was held by any other person, if under this
chapter such property has, for the purpose of determining gain or
loss from a sale or exchange, the same basis in whole or in part
in his hands as it would have in the hands of such other person.
(3) In determining the period for which the taxpayer has held
stock or securities received upon a distribution where no gain
was recognized to the distributee under section 1081(c) (or under
section 112(g) of the Revenue Act of 1928, 45 Stat. 818, or the
Revenue Act of 1932, 48 Stat. 705), there shall be included the
period for which he held the stock or securities in the
distributing corporation before the receipt of the stock or
securities on such distribution.
(4) In determining the period for which the taxpayer has held
stock or securities the acquisition of which (or the contract or
option to acquire which) resulted in the nondeductibility (under
section 1091 relating to wash sales) of the loss from the sale or
other disposition of substantially identical stock or securities,
there shall be included the period for which he held the stock or
securities the loss from the sale or other disposition of which
was not deductible.
(5) In determining the period for which the taxpayer has held
stock or rights to acquire stock received on a distribution, if
the basis of such stock or rights is determined under section 307
(or under so much of section 1052(c) as refers to section
113(a)(23) of the Internal Revenue Code of 1939), there shall
(under regulations prescribed by the Secretary) be included the
period for which he held the stock in the distributing
corporation before the receipt of such stock or rights upon such
distribution.
(6) In determining the period for which the taxpayer has held
stock or securities acquired from a corporation by the exercise
of rights to acquire such stock or securities, there shall be
included only the period beginning with the date on which the
right to acquire was exercised.
(7) In determining the period for which the taxpayer has held a
residence, the acquisition of which resulted under section 1034
(as in effect on the day before the date of the enactment of the
Taxpayer Relief Act of 1997) in the nonrecognition of any part of
the gain realized on the sale or exchange of another residence,
there shall be included the period for which such other residence
had been held as of the date of such sale or exchange. For
purposes of this paragraph, the term "sale or exchange" includes
an involuntary conversion occurring after December 31, 1950, and
before January 1, 1954.
(8) In determining the period for which the taxpayer has held a
commodity acquired in satisfaction of a commodity futures
contract (other than a commodity futures contract to which
section 1256 applies) there shall be included the period for
which he held the commodity futures contract if such commodity
futures contract was a capital asset in his hands.
(9) Any reference in this section to a provision of this title
shall, where applicable, be deemed a reference to the
corresponding provision of the Internal Revenue Code of 1939, or
prior internal revenue laws.
(10) In determining the period for which the taxpayer has held
trust certificates of a trust to which subsection (d) of section
1246 applies, or the period for which the taxpayer has held stock
in a corporation to which subsection (d) of section 1246 applies,
there shall be included the period for which the trust or
corporation (as the case may be) held the stock of foreign
investment companies.
(11) In the case of a person acquiring property from a decedent
or to whom property passed from a decedent (within the meaning of
section 1014(b)), if -
(A) the basis of such property in the hands of such person is
determined under section 1014, and
(B) such property is sold or otherwise disposed of by such
person within 1 year after the decedent's death,
then such person shall be considered to have held such property
for more than 1 year.
(12) If -
(A) property is acquired by any person in a transfer to which
section 1040 applies,
(B) such property is sold or otherwise disposed of by such
person within 1 year after the decedent's death, and
(C) such sale or disposition is to a person who is a
qualified heir (as defined in section 2032A(e)(1)) with respect
to the decedent,
then the person making such sale or other disposition shall be
considered to have held such property for more than 1 year.
(13) In determining the period for which the taxpayer has held
qualified replacement property (within the meaning of section
1042(b)) the acquisition of which resulted under section 1042 in
the nonrecognition of any part of the gain realized on the sale
of qualified securities (within the meaning of section 1042(b)),
there shall be included the period for which such qualified
securities had been held by the taxpayer.
(14) In determining the period for which the taxpayer has held
property the acquisition of which resulted under section 1043 in
the nonrecognition of any part of the gain realized on the sale
of other property, there shall be included the period for which
such other property had been held as of the date of such sale.
(15) Except for purposes of sections 1202(a)(2), 1202(c)(2)(A),
1400B(b), and 1400F(b), in determining the period for which the
taxpayer has held property the acquisition of which resulted
under section 1045 or 1397B in the nonrecognition of any part of
the gain realized on the sale of other property, there shall be
included the period for which such other property has been held
as of the date of such sale.
(16) If the security to which a securities futures contract (as
defined in section 1234B) relates (other than a contract to which
section 1256 applies) is acquired in satisfaction of such
contract, in determining the period for which the taxpayer has
held such security, there shall be included the period for which
the taxpayer held such contract if such contract was a capital
asset in the hands of the taxpayer.
(17) Cross reference. -
For special holding period provision relating to certain
partnership distributions, see section 735(b).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 323; Pub. L. 87-834, Sec.
14(b)(3), Oct. 16, 1962, 76 Stat. 1041; Pub. L. 91-614, title I,
Sec. 101(g), Dec. 31, 1970, 84 Stat. 1838; Pub. L. 94-455, title
XIV, Sec. 1402(b)(1)(Q), (2), title XIX, Sec. 1906(b) (13)(A), Oct.
4, 1976, 90 Stat. 1732, 1834; Pub. L. 95-600, title VII, Sec.
702(c)(5), Nov. 6, 1978, 92 Stat. 2927; Pub. L. 96-223, title IV,
Sec. 401(a), Apr. 2, 1980, 94 Stat. 299; Pub. L. 97-448, title I,
Secs. 104(b)(3)(C), 105(c)(4), Jan. 12, 1983, 96 Stat. 2382, 2385;
Pub. L. 98-369, div. A, title I, Sec. 54(c), title V, Sec.
541(b)(1), title X, Sec. 1001(b)(14), (e), July 18, 1984, 98 Stat.
569, 890, 1011, 1012; Pub. L. 100-647, title I, Sec. 1006(e)(17),
Nov. 10, 1988, 102 Stat. 3403; Pub. L. 101-194, title V, Sec.
502(b)(1), Nov. 30, 1989, 103 Stat. 1754; Pub. L. 105-34, title
III, Secs. 312(d)(9), 313(b)(2), Aug. 5, 1997, 111 Stat. 840, 842;
Pub. L. 105-206, title V, Sec. 5001(a)(5), title VI, Sec.
6005(d)(4), July 22, 1998, 112 Stat. 788, 805; Pub. L. 106-554,
Sec. 1(a)(7) [title I, Sec. 116(b)(2), title IV, Sec. 401(h)(1)],
Dec. 21, 2000, 114 Stat. 2763, 2763A-603, 2763A-650.)
-REFTEXT-
REFEREN |
