
From the U.S. Code Online via GPO Access
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[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC1212]

 
                     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
 
Sec. 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--
                (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.

(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.)


                               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.''

                  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, 1222, 1247, 
1314, 1341, 1351, 1398, 1503, 6411, 6655 of this title.
