Cases: Indopco, Inc. v. Commissioner, 503 U.S. 79 (1992); United States v. Hill, 506 U.S. 546 (1993)
Final rules 5
(a) General rule No deduction shall be allowed for—
Amended 1964, 1965, 1976
- 1976 Pub. L. 94-455 Pub. L. 94–455, § 1904(b)(10)(A)(i)(I), struck out par. (3) which provided that no deduction be allowed for amounts paid as tax under section 4911 (relating to imposition of interest equalization tax) except as provided in subsec. (d).
- 1965 Pub. L. 89-243 Pub. L. 89–243, § 4(p)(1), inserted “Except as provided in subsection (d)”, and struck out “except to the extent that any amount attributable to the amount paid as tax is included in gross income for the taxable year” after parenthetical provision.
- 1964 Pub. L. 88-563 Pub. L. 88–563 added par. (3).
Research 1
Cases: Commissioner v. Idaho Power Co., 418 U.S. 1 (1974)
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(1) Any amount paid out for new buildings or for permanent improvements or betterments made to increase the value of any property or estate. This paragraph shall not apply to—
Amended 2006, 2018
- 2018 Pub. L. 115-141 Pub. L. 115–141, § 401(a)(61), redesignated subpars. (I) to (L) as (H) to (K), respectively.
- 2006 Pub. L. 109-432 Pub. L. 109–432 added subpar. (L).
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Cases: Commissioner v. Idaho Power Co., 418 U.S. 1 (1974)
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(A) expenditures for the development of mines or deposits deductible under section 616,
(B) research and experimental expenditures deductible under section 174 or 174A,
Amended 2025
- 2025 Pub. L. 119-21 Pub. L. 119–21 inserted “or 174A” after “174”.
(C) soil and water conservation expenditures deductible under section 175,
(D) expenditures by farmers for fertilizer, etc., deductible under section 180,
Amended 1960
- 1960 Pub. L. 86-779 Pub. L. 86–779 added subpar. (D).
(E) expenditures for removal of architectural and transportation barriers to the handicapped and elderly which the taxpayer elects to deduct under section 190,
Amended 1962, 1986
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 402(b)(1), struck out subpar. (E) relating to nonapplication of par. (1) to expenditures by farmers for clearing land deductible under section 182, and redesignated subpars. (F) to (H) as (E) to (G), respectively.
- 1962 Pub. L. 87-834 Pub. L. 87–834 added subpar. (E).
(F) expenditures for tertiary injectants with respect to which a deduction is allowed under section 193,
Amended 1976, 1986, 2018
- 2018 Pub. L. 115-141 Pub. L. 115–141, § 401(a)(60), substituted comma for semicolon at end.
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 402(b)(1), struck out subpar. (E) relating to nonapplication of par. (1) to expenditures by farmers for clearing land deductible under section 182, and redesignated subpars. (F) to (H) as (E) to (G), respectively.
- 1976 Pub. L. 94-455 Pub. L. 94–455, § 2122(b)(2), added subpar. (F).
(G) expenditures for which a deduction is allowed under section 179,
Amended 1980, 1986, 2018
- 2018 Pub. L. 115-141 Pub. L. 115–141, § 401(a)(60), substituted comma for semicolon at end.
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 402(b)(1), struck out subpar. (E) relating to nonapplication of par. (1) to expenditures by farmers for clearing land deductible under section 182, and redesignated subpars. (F) to (H) as (E) to (G), respectively.
- 1980 Pub. L. 96-223 Pub. L. 96–223 added subpar. (G).
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(H) expenditures for which a deduction is allowed under section 179B,
Amended 1981, 1986, 1997, 2014, 2018
- 2018 Pub. L. 115-141 Pub. L. 115–141, § 401(a)(61), redesignated subpars. (I) to (L) as (H) to (K), respectively.
- 2014 Pub. L. 113-295 Pub. L. 113–295, § 221(a)(34)(D), struck out subpar. (H) which read as follows: “expenditures for which a deduction is allowed under section 179A,”.
- 1997 Pub. L. 105-34 Pub. L. 105–34 added subpar. (H).
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 402(b)(1), struck out subpar. (E) relating to nonapplication of par. (1) to expenditures by farmers for clearing land deductible under section 182, and redesignated subpars. (F) to (H) as (E) to (G), respectively.
- 1981 Pub. L. 97-34 Pub. L. 97–34, § 202(d)(1), added subpar. (H).
(I) expenditures for which a deduction is allowed under section 179C,
Amended 2004, 2018
- 2018 Pub. L. 115-141 Pub. L. 115–141, § 401(a)(61), redesignated subpars. (I) to (L) as (H) to (K), respectively.
- 2004 Pub. L. 108-357 Pub. L. 108–357 added subpar. (I).
(J) expenditures for which a deduction is allowed under section 179D, or
Amended 2005, 2018
- 2018 Pub. L. 115-141 Pub. L. 115–141, § 401(a)(61), redesignated subpars. (I) to (L) as (H) to (K), respectively.
- 2005 Pub. L. 109-58 Pub. L. 109–58, § 1323(b)(2), added subpar. (J).
(K) expenditures for which a deduction is allowed under section 179E.
Amended 2005, 2018
- 2018 Pub. L. 115-141 Pub. L. 115–141, § 401(a)(61), redesignated subpars. (I) to (L) as (H) to (K), respectively.
- 2005 Pub. L. 109-58 Pub. L. 109–58, § 1331(b)(4), added subpar. (K).
(2) Any amount expended in restoring property or in making good the exhaustion thereof for which an allowance is or has been made.
[(b) Repealed. Pub. L. 101–508, title XI, § 11801(a)(16), Nov. 5, 1990, 104 Stat. 1388–520]
Amended 1990
- 1990 Pub. L. 101-508 Pub. L. 101–508, § 11801(a)(16), struck out subsec. (b) “Expenditures for advertising and good will” which read as follows: “If a corporation has, for the purpose of computing its excess profits tax credit under chapter 2E or subchapter D of chapter 1 of the Internal Revenue Code of 1939 claimed the benefits of the election provided in section 733 or section 451 of such code, as the case may be, no deduction shall be allowable under section 162 to such corporation for expenditures for advertising or the promotion of good will which, under the rules and regulations prescribed under section 733 or section 451 of such code, as the case may be, may be regarded as capital investments.”
Research 1
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(c) Intangible drilling and development costs in the case of oil and gas wells and geothermal wells Notwithstanding subsection (a), and except as provided in subsection (i), regulations shall be prescribed by the Secretary under this subtitle corresponding to the regulations which granted the option to deduct as expenses intangible drilling and development costs in the case of oil and gas wells and which were recognized and approved by the Congress in House Concurrent Resolution 50, Seventy-ninth Congress. Such regulations shall also grant the option to deduct as expenses intangible drilling and development costs in the case of wells drilled for any geothermal deposit (as defined in section 613(e)(2)) to the same extent and in the same manner as such expenses are deductible in the case of oil and gas wells. This subsection shall not apply with respect to any costs to which any deduction is allowed under section 59(e) or 291.
Amended 1978, 1982, 1986, 1988, 1990
- 1990 Pub. L. 101-508 Pub. L. 101–508, § 11815(b)(3), substituted “section 613(e)(2)” for “section 613(e)(3)”.
- 1988 Pub. L. 100-647 Pub. L. 100–647 substituted “section 59(e)” for “section 59(d)”.
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 701(e)(4)(D), substituted “59(d)” for “58(i)”.
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 411(b)(1)(B), inserted “and except as provided in subsection (i),”.
- 1982 Pub. L. 97-248 Pub. L. 97–248, § 204(c)(1), inserted provision that this subsection not apply with respect to any costs to which any deduction is allowed under section 58(i) or 291.
- 1978 Pub. L. 95-618 Pub. L. 95–618 inserted “and geothermal wells” after “gas wells” in heading and in text inserted provision that such regulations also grant the option to deduct as expenses intangible drilling and development costs in the case of wells drilled for any geothermal deposit (as defined in section 613(e)(3)) to the same extent and in the same manner as such expenses are deductible in the case of oil and gas wells.
Research 1
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(d) Expenditures in connection with certain railroad rolling stock In the case of expenditures in connection with the rehabilitation of a unit of railroad rolling stock (except a locomotive) used by a domestic common carrier by railroad which would, but for this subsection, be properly chargeable to capital account, such expenditures, if during any 12-month period they do not exceed an amount equal to 20 percent of the basis of such unit in the hands of the taxpayer, shall, at the election of the taxpayer, be treated (notwithstanding subsection (a)) as deductible repairs under section 162 or 212. An election under this subsection shall be made for any taxable year at such time and in such manner as the Secretary prescribes by regulations. An election may not be made under this subsection for any taxable year to which an election under subsection (e) applies to railroad rolling stock (other than locomotives).
Amended 1965, 1976
- 1976 Pub. L. 94-455 Pub. L. 94–455, §§ 1904(b)(10)(A)(i)(I), (II), 1906(b)(13)(A), redesignated subsec. (e) as (d) and struck out “or his delegate” after “Secretary” and substituted “subsection (e)” for “subsection (f)”. Former subsec. (d) was struck out.
- 1965 Pub. L. 89-243 Pub. L. 89–243, § 4(p)(2), added subsec. (d).
Research 1
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[(e) Repealed. Pub. L. 97–34, title II, § 201(c), Aug. 13, 1981, 95 Stat. 219]
Amended 1969, 1971, 1976, 1981
- 1981 Pub. L. 97-34 Pub. L. 97–34, § 201(c), struck out subsec. (e) which related to the allowance of repair expenses or specified repair, rehabilitation, or improvement expenditures.
- 1976 Pub. L. 94-455 Pub. L. 94–455, §§ 1904(b)(10)(A)(i)(I), 1906(b)(13)(A), redesignated subsec. (f) as (e) and struck out “or his delegate” after “Secretary”. Former subsec. (e) redesignated (d).
- 1971 Pub. L. 92-178 Pub. L. 92–178, § 109(c), substituted “shall, at the election of the taxpayer, be treated” for “shall be treated” and inserted provisions respecting making of election under this subsection for any taxable year at such time and in such manner as Secretary or his delegate prescribed by regulation and prohibiting making of election for any taxable year to which an election under subsec. (f) applies to railroad rolling stock (other than locomotives).
- 1969 Pub. L. 91-172 Pub. L. 91–172 added subsec. (e).
Research 1
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(f) Railroad ties In the case of a domestic common carrier by rail (including a railroad switching or terminal company) which uses the retirement-replacement method of accounting for depreciation of its railroad track, expenditures for acquiring and installing replacement ties of any material (and fastenings related to such ties) shall be accorded the same tax accounting treatment as expenditures for replacement ties of wood (and fastenings related to such ties).
Amended 1971, 1976
- 1976 Pub. L. 94-455 Pub. L. 94–455, §§ 1701(a), 1904(b)(10)(A)(i)(I), added subsec. (f). Former subsec. (f) redesignated (e).
- 1971 Pub. L. 92-178 Pub. L. 92–178, § 109(b), added subsec. (f).
Research 1
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(g) Certain interest and carrying costs in the case of straddles
Amended 1981
- 1981 Pub. L. 97-34 Pub. L. 97–34, § 502, added subsec. (g).
Research 1
Cases: Julien v. Commissioner, 82 T.C. 492 (1984); Price v. Commissioner, 88 T.C. 860 (1987)
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(1) General rule No deduction shall be allowed for interest and carrying charges properly allocable to personal property which is part of a straddle (as defined in section 1092(c)). Any amount not allowed as a deduction by reason of the preceding sentence shall be chargeable to the capital account with respect to the personal property to which such amount relates.
Research 1
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(2) Interest and carrying charges defined For purposes of paragraph (1), the term “interest and carrying charges” means the excess of—
Amended 1984
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 102(e)(7), amended par. (2) generally, striking out “charges for temporary use of the personal property in a short sale, or” after “(including” in subpar. (A)(ii), substituting “any amount treated as ordinary income under section 1271(a)(3)(A), 1278, or 1281(a) with respect to such property for the taxable year, and” for “any amount treated as ordinary income under section 1232(a)(3)(A) with respect to such property for the taxable year” in subpar. (B)(ii), and adding subpar. (B)(iii).
Research 1
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(A) the sum of—
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(i) interest on indebtedness incurred or continued to purchase or carry the personal property, and
(ii) all other amounts (including charges to insure, store, or transport the personal property) paid or incurred to carry the personal property, over
Amended 1983
- 1983 Pub. L. 97-448 Pub. L. 97–448, § 105(b)(1), substituted “all other amounts (including charges for temporary use of the personal property in a short sale, or to insure, store, or transport the personal property) paid or incurred to carry the personal property, over” for “amounts paid or incurred to insure, store, or transport the personal property, over”.
Research 1
(B) the sum of—
(i) the amount of interest (including original issue discount) includible in gross income for the taxable year with respect to the property described in subparagraph (A),
(ii) any amount treated as ordinary income under section 1271(a)(3)(A), 1276, or 1281(a) with respect to such property for the taxable year,
Amended 1983, 2004
- 2004 Pub. L. 108-311 Pub. L. 108–311 substituted “1276” for “1278”.
- 1983 Pub. L. 97-448 Pub. L. 97–448, § 306(a)(9)(A), substituted “section 1232(a)(3)(A)” for “section 1232(a)(4)(A)”.
(iii) the excess of any dividends includible in gross income with respect to such property for the taxable year over the amount of any deduction allowable with respect to such dividends under section 243 or 245, and
Amended 2014
- 2014 Pub. L. 113-295 Pub. L. 113–295, § 221(a)(41)(G), struck out “, 244,” after “section 243”.
(iv) any amount which is a payment with respect to a security loan (within the meaning of section 512(a)(5)) includible in gross income with respect to such property for the taxable year.
Amended 1986
- 1986 Pub. L. 99-541 Pub. L. 99–541, § 1808(b), added cl. (iv).
Research 1
For purposes of subparagraph (A), the term “interest” includes any amount paid or incurred in connection with personal property used in a short sale.
(3) Exception for hedging transactions This subsection shall not apply in the case of any hedging transaction (as defined in section 1256(e)).
(4) Application with other provisions
Amended 1984
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 102(e)(8), added par. (4).
Research 1
(A) Subsection (c) In the case of any short sale, this subsection shall be applied after subsection (h).
(B) Section 1277 or 1282 In the case of any obligation to which section 1277 or 1282 applies, this subsection shall be applied after section 1277 or 1282.
(h) Payments in lieu of dividends in connection with short sales
Amended 1984
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 56(a), added subsec. (h).
Research 1
Cases: Julien v. Commissioner, 82 T.C. 492 (1984); Price v. Commissioner, 88 T.C. 860 (1987)
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(1) In general If—
(A) a taxpayer makes any payment with respect to any stock used by such taxpayer in a short sale and such payment is in lieu of a dividend payment on such stock, and
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(B) the closing of such short sale occurs on or before the 45th day after the date of such short sale,
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then no deduction shall be allowed for such payment. The basis of the stock used to close the short sale shall be increased by the amount not allowed as a deduction by reason of the preceding sentence.
Research 1
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(2) Longer period in case of extraordinary dividends If the payment described in paragraph (1)(A) is in respect of an extraordinary dividend, paragraph (1)(B) shall be applied by substituting “the day 1 year after the date of such short sale” for “the 45th day after the date of such short sale”.
Research 1
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(3) Extraordinary dividend For purposes of this subsection, the term “extraordinary dividend” has the meaning given to such term by section 1059(c); except that such section shall be applied by treating the amount realized by the taxpayer in the short sale as his adjusted basis in the stock.
(4) Special rule where risk of loss diminished The running of any period of time applicable under paragraph (1)(B) (as modified by paragraph (2)) shall be suspended during any period in which—
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(A) the taxpayer holds, has an option to buy, or is under a contractual obligation to buy, substantially identical stock or securities, or
(B) under regulations prescribed by the Secretary, a taxpayer has diminished his risk of loss by holding 1 or more other positions with respect to substantially similar or related property.
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(5) Deduction allowable to extent of ordinary income from amounts paid by lending broker for use of collateral
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(A) In general Paragraph (1) shall apply only to the extent that the payments or distributions with respect to any short sale exceed the amount which—
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(i) is treated as ordinary income by the taxpayer, and
(ii) is received by the taxpayer as compensation for the use of any collateral with respect to any stock used in such short sale.
(B) Exception not to apply to extraordinary dividends Subparagraph (A) shall not apply if one or more payments or distributions is in respect of an extraordinary dividend.
(6) Application of this subsection with subsection (g) In the case of any short sale, this subsection shall be applied before subsection (g).
(i) Special rules for intangible drilling and development costs incurred outside the United States In the case of intangible drilling and development costs paid or incurred with respect to an oil, gas, or geothermal well located outside the United States—
Amended 1986
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 411(b)(1)(A), added subsec. (i).
Research 1
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(1) subsection (c) shall not apply, and
(2) such costs shall—
(A) at the election of the taxpayer, be included in adjusted basis for purposes of computing the amount of any deduction allowable under section 611 (determined without regard to section 613), or
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(B) if subparagraph (A) does not apply, be allowed as a deduction ratably over the 10-taxable year period beginning with the taxable year in which such costs were paid or incurred.
This subsection shall not apply to costs paid or incurred with respect to a nonproductive well.