26 USC 1212 - Capital loss carrybacks and carryovers

U.S Code last checked for updates: Nov 22, 2024

§ 1212.

Capital loss carrybacks and carryovers

(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 to each of the 10 taxable years succeeding the loss year, but only to the extent such loss is attributable to a foreign expropriation loss,

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

(C)

Priority of application

(3)

Regulated investment companies

(A)

In general

If a regulated investment company has a net capital loss for any taxable year—

(i)

paragraph (1) shall not apply to such loss,

(ii)

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 arising on the first day of the next taxable year, and

(iii)

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 arising on the first day of the next taxable year.

(B)

Coordination with general rule

If a net capital loss to which paragraph (1) applies is carried over to a taxable year of a regulated investment company—

(i)

Losses to which this paragraph applies

(ii)

Losses to which general rule applies

(4)

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 regulated investment company (as defined in section 851), or

(B)

for which it is a real estate investment trust (as defined in section 856).

(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

(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

(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

(7)

Other definitions and special rules

For purposes of this subsection—

(A)

Section 1256 contract

(B)

Exclusion for estates and trusts

(Aug. 16, 1954, ch. 736, 68A Stat. 321; Pub. L. 88–272, title II, § 230(a), Feb. 26, 1964, 78 Stat. 99; Pub. L. 88–571, § 7(a), Sept. 2, 1964, 78 Stat. 860; Pub. L. 91–172, title V, §§ 512 (a), (b), (f)(1), 513(b), Dec. 30, 1969, 83 Stat. 638, 639, 641, 642; Pub. L. 94–455, title XIV, § 1403 (a), title XIX, § 1901(b)(33)(O), Oct. 4, 1976, 90 Stat. 1733, 1802; Pub. L. 95–600, title VII, § 703(k), Nov. 6, 1978, 92 Stat. 2942; Pub. L. 97–34, title V, § 504, Aug. 13, 1981, 95 Stat. 330; Pub. L. 97–354, § 5(a)(35), Oct. 19, 1982, 96 Stat. 1695; Pub. L. 97–448, title I, § 105(c)(7), Jan. 12, 1983, 96 Stat. 2387; Pub. L. 98–369, div. A, title I, § 102(e)(3), title X, § 1002(a), July 18, 1984, 98 Stat. 624, 1012; Pub. L. 99–514, title III, § 301(b)(11), title XVIII, § 1899A(67), Oct. 22, 1986, 100 Stat. 2218, 2962; Pub. L. 100–647, title I, § 1003(a)(3), Nov. 10, 1988, 102 Stat. 3382; Pub. L. 108–357, title IV, § 413(c)(20)(A), Oct. 22, 2004, 118 Stat. 1509; Pub. L. 111–325, title I, § 101(a), (b)(1), Dec. 22, 2010, 124 Stat. 3538.)

cite as: 26 USC 1212