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26 U.S.C. § 1277 — Deferral of interest deduction allocable to accrued market discount
Federal law — U.S. Code and appendices · legal_authorities
**(a) General rule** Except as otherwise provided in this section, the net direct interest expense with respect to any market discount bond shall be allowed as a deduction for the taxable year only to the extent that such expense exceeds the portion of the market discount allocable to the days during the taxable year on which such bond was held by the taxpayer (as determined under the rules of section 1276(b)).
**(b) Disallowed deduction allowed for later years**
(1) **Election to take into account in later year where net interest income from bond**
(A) *In general* — If—
(i) there is net interest income for any taxable year with respect to any market discount bond, and
(ii) the taxpayer makes an election under this subparagraph with respect to such bond,
any disallowed interest expense with respect to such bond shall be treated as interest paid or accrued by the taxpayer during such taxable year to the extent such disallowed interest expense does not exceed the net interest income with respect to such bond.
(B) *Determination of disallowed interest expense* — For purposes of subparagraph (A), the amount of the disallowed interest expense—
(i) shall be determined as of the close of the preceding taxable year, and
(ii) shall not include any amount previously taken into account under subparagraph (A).
(C) *Net interest income* — For purposes of this paragraph, the term “net interest income” means the excess of the amount determined under paragraph (2) of subsection (c) over the amount determined under paragraph (1) of subsection (c).
(2) **Remainder of disallowed interest expense allowed for year of disposition**
(A) *In general* — Except as otherwise provided in this paragraph, the amount of the disallowed interest expense with resp
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Source file: Laws/federal/codes/united-states-code/title-26/section-1277-deferral-of-interest-deduction-allocable-to-accrued-market-discount--85e7d0feaf.md
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Source location: Title 26, Chapter 1, § 1277; chapter-001-normal-taxes-and-surtaxes.md
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**(a) General rule** Except as otherwise provided in this section, the net direct interest expense with respect to any market discount bond shall be allowed as a deduction for the taxable year only to the extent that such expense exceeds the portion of the market discount allocable to the days during the taxable year on which such bond was held by the taxpayer (as determined under the rules of section 1276(b)).
**(b) Disallowed deduction allowed for later years**
(1) **Election to take into account in later year where net interest income from bond**
(A) *In general* — If—
(i) there is net interest income for any taxable year with respect to any market discount bond, and
(ii) the taxpayer makes an election under this subparagraph with respect to such bond,
any disallowed interest expense with respect to such bond shall be treated as interest paid or accrued by the taxpayer during such taxable year to the extent such disallowed interest expense does not exceed the net interest income with respect to such bond.
(B) *Determination of disallowed interest expense* — For purposes of subparagraph (A), the amount of the disallowed interest expense—
(i) shall be determined as of the close of the preceding taxable year, and
(ii) shall not include any amount previously taken into account under subparagraph (A).
(C) *Net interest income* — For purposes of this paragraph, the term “net interest income” means the excess of the amount determined under paragraph (2) of subsection (c) over the amount determined under paragraph (1) of subsection (c).
(2) **Remainder of disallowed interest expense allowed for year of disposition**
(A) *In general* — Except as otherwise provided in this paragraph, the amount of the disallowed interest expense with respect to any market discount bond shall be treated as interest paid or accrued by the taxpayer in the taxable year in which such bond is disposed of.
(B) *Nonrecognition transactions* — If any market discount bond is disposed of in a nonrecognition transaction—
(i) the disallowed interest expense with respect to such bond shall be treated as interest paid or accrued in the year of disposition only to the extent of the amount of gain recognized on such disposition, and
(ii) the disallowed interest expense with respect to such property (to the extent not so treated) shall be treated as disallowed interest expense—
(I) in the case of a transaction described in section 1276(c)(1), of the transferee with respect to the transferred basis property, or
(II) in the case of a transaction described in section 1276(c)(2), with respect to the exchanged basis property.
(C) *Disallowed interest expense reduced for amounts previously taken into account under paragraph (1)* — For purposes of this paragraph, the amount of the disallowed interest expense shall not include any amount previously taken into account under paragraph (1).
(3) **Disallowed interest expense** — For purposes of this subsection, the term “disallowed interest expense” means the aggregate amount disallowed under subsection (a) with respect to the market discount bond.
**(c) Net direct interest expense** For purposes of this section, the term “net direct interest expense” means, with respect to any market discount bond, the excess (if any) of—
(1) the amount of interest paid or accrued during the taxable year on indebtedness which is incurred or continued to purchase or carry such bond, over
(2) the aggregate amount of interest (including original issue discount) includible in gross income for the taxable year with respect to such bond.
In the case of any financial institution which is a bank (as defined in section 585(a)(2)), the determination of whether interest is described in paragraph (1) shall be made under principles similar to the principles of section 291(e)(1)(B)(ii). Under rules similar to the rules of section 265(a)(5), short sale expenses shall be treated as interest for purposes of determining net direct interest expense.
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Federal law — U.S. Code and appendices · legal_authorities
**(a) General rule** For purposes of this title—
(1) **Retirement** — Amounts received by the holder on retirement of any debt instrument shall be considered as amounts received in exchange therefor.
(2) **Ordinary income on sale or exchange where intention to call before maturity**
(A) *In general* — If at the time of original issue there was an intention to call a debt instrument before maturity, any gain realized on the sale or exchange thereof which does not exceed an amount equal to—
(i) the original issue discount, reduced by
(ii) the portion of original issue discount previously includible in the gross income of any holder (without regard to section 1272(a)(7) (or the corresponding provisions of prior law)),
shall be treated as ordinary income.
(B) *Exceptions* — This paragraph shall not apply to—
(i) any tax-exempt obligation, or
(ii) any holder who has purchased the debt instrument at a premium.
(3) **Certain short-term Government obligations**
(A) *In general* — On the sale or exchange of any short-term Government obligation, any gain realized which does not exceed an amount equal to the ratable share of the acquisition discount shall be treated as ordinary income.
(B) *Short-term Government obligation* — For purposes of this paragraph, the term “short-term Government obligation” means any 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, which has a fixed maturity date not more than 1 year from the date of issue. Such term does not include any tax-exempt obligation.
(C) *Acquisition discount* — For purposes of this paragraph, the term “acquisition discount” means the excess of the stated redemption price at maturity over the t
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Married individuals filing joint returns and surviving spouses** There is hereby imposed on the taxable income of—
(1) every married individual (as defined in section 7703) who makes a single return jointly with his spouse under section 6013, and
(2) every surviving spouse (as defined in section 2(a)),
a tax determined in accordance with the following table: If taxable income is:The tax is: Not over $36,90015% of taxable income. Over $36,900 but not over $89,150$5,535, plus 28% of the excess over $36,900. Over $89,150 but not over $140,000$20,165, plus 31% of the excess over $89,150. Over $140,000 but not over $250,000$35,928.50, plus 36% of the excess over $140,000. Over $250,000$75,528.50, plus 39.6% of the excess over $250,000.
**(b) Heads of households** There is hereby imposed on the taxable income of every head of a household (as defined in section 2(b)) a tax determined in accordance with the following table: If taxable income is:The tax is: Not over $29,60015% of taxable income. Over $29,600 but not over $76,400$4,440, plus 28% of the excess over $29,600. Over $76,400 but not over $127,500$17,544, plus 31% of the excess over $76,400. Over $127,500 but not over $250,000$33,385, plus 36% of the excess over $127,500. Over $250,000$77,485, plus 39.6% of the excess over $250,000.
**(c) Unmarried individuals (other than surviving spouses and heads of households)** There is hereby imposed on the taxable income of every individual (other than a surviving spouse as defined in section 2(a) or the head of a household as defined in section 2(b)) who is not a married individual (as defined in section 7703) a tax determined in accordance with the following table: If taxable income is:The tax is: Not over $22,10015% of taxable income. Over $22,100 but not over $53,50
Source: Supplied U.S. Code snapshot — release unconfirmed · 26 U.S.C. § 1
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Ordinary income**
(1) **In general** — Except as otherwise provided in this section, gain on the disposition of any market discount bond shall be treated as ordinary income to the extent it does not exceed the accrued market discount on such bond. Such gain shall be recognized notwithstanding any other provision of this subtitle.
(2) **Dispositions other than sales, etc.** — For purposes of paragraph (1), a person disposing of any market discount bond in any transaction other than a sale, exchange, or involuntary conversion shall be treated as realizing an amount equal to the fair market value of the bond.
(3) **Treatment of partial principal payments**
(A) *In general* — Any partial principal payment on a market discount bond shall be included in gross income as ordinary income to the extent such payment does not exceed the accrued market discount on such bond.
(B) *Adjustment* — If subparagraph (A) applies to any partial principal payment on any market discount bond, for purposes of applying this section to any disposition of (or subsequent partial principal payment on) such bond, the amount of accrued market discount shall be reduced by the amount of such partial principal payment included in gross income under subparagraph (A).
(4) **Gain treated as interest for certain purposes** — Except for purposes of sections 103, 871(a), 881, 1441, 1442, and 6049 (and such other provisions as may be specified in regulations), any amount treated as ordinary income under paragraph (1) or (3) shall be treated as interest for purposes of this title.
**(b) Accrued market discount** For purposes of this section—
(1) **Ratable accrual** — Except as otherwise provided in this subsection or subsection (c), the accrued market discount on any bond shall be an amount whi
Source: Supplied U.S. Code snapshot — release unconfirmed · 26 U.S.C. § 1276
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Federal law — U.S. Code and appendices · legal_authorities
**(a) General rule**
(1) **Wholly worthless debts** — There shall be allowed as a deduction any debt which becomes worthless within the taxable year.
(2) **Partially worthless debts** — When satisfied that a debt is recoverable only in part, the Secretary may allow such debt, in an amount not in excess of the part charged off within the taxable year, as a deduction.
**(b) Amount of deduction** For purposes of subsection (a), the basis for determining the amount of the deduction for any bad debt shall be the adjusted basis provided in section 1011 for determining the loss from the sale or other disposition of property.
**(c) Repealed. Pub. L. 99–514, title VIII, § 805(a), Oct. 22, 1986, 100 Stat. 2361]**
**(d) Nonbusiness debts**
(1) **General rule** — In the case of a taxpayer other than a corporation—
(A) subsection (a) shall not apply to any nonbusiness debt; and
(B) where any nonbusiness debt becomes worthless within the taxable year, the loss resulting therefrom shall be considered a loss from the sale or exchange, during the taxable year, of a capital asset held for not more than 1 year.
(2) **Nonbusiness debt defined** — For purposes of paragraph (1), the term “nonbusiness debt” means a debt other than—
(A) a debt created or acquired (as the case may be) in connection with a trade or business of the taxpayer; or
(B) a debt the loss from the worthlessness of which is incurred in the taxpayer’s trade or business.
**(e) Worthless securities** This section shall not apply to a debt which is evidenced by a security as defined in section 165(g)(2)(C).
**(f) Cross references**
(1) For disallowance of deduction for worthlessness of debts owed by political parties and similar organizations, see section 271.
(2) For special rule for banks with respect
Source: Supplied U.S. Code snapshot — release unconfirmed · 26 U.S.C. § 166
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Requirements for qualification** A trust created or organized in the United States and forming part of a stock bonus, pension, or profit-sharing plan of an employer for the exclusive benefit of his employees or their beneficiaries shall constitute a qualified trust under this section—
(1) if contributions are made to the trust by such employer, or employees, or both, or by another employer who is entitled to deduct his contributions under section 404(a)(3)(B) (relating to deduction for contributions to profit-sharing and stock bonus plans), or by a charitable remainder trust pursuant to a qualified gratuitous transfer (as defined in section 664(g)(1)), for the purpose of distributing to such employees or their beneficiaries the corpus and income of the fund accumulated by the trust in accordance with such plan;
(2) if under the trust instrument it is impossible, at any time prior to the satisfaction of all liabilities with respect to employees and their beneficiaries under the trust, for any part of the corpus or income to be (within the taxable year or thereafter) used for, or diverted to, purposes other than for the exclusive benefit of his employees or their beneficiaries (but this paragraph shall not be construed, in the case of a multiemployer plan, to prohibit the return of a contribution within 6 months after the plan administrator determines that the contribution was made by a mistake of fact or law (other than a mistake relating to whether the plan is described in section 401(a) or the trust which is part of such plan is exempt from taxation under section 501(a), or the return of any withdrawal liability payment determined to be an overpayment within 6 months of such determination));
(3) if the plan of which such trust is a part satisfies the requireme
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Federal law — U.S. Code and appendices · legal_authorities
**(a) General rule** No deduction shall be allowed for—
(1) **Expenses** — Any amount otherwise allowable as a deduction which is allocable to one or more classes of income other than interest (whether or not any amount of income of that class or classes is received or accrued) wholly exempt from the taxes imposed by this subtitle, or any amount otherwise allowable under section 212 (relating to expenses for production of income) which is allocable to interest (whether or not any amount of such interest is received or accrued) wholly exempt from the taxes imposed by this subtitle.
(2) **Interest** — Interest on indebtedness incurred or continued to purchase or carry obligations the interest on which is wholly exempt from the taxes imposed by this subtitle.
(3) **Certain regulated investment companies** — In the case of a regulated investment company which distributes during the taxable year an exempt-interest dividend (including exempt-interest dividends paid after the close of the taxable year as described in section 855), that portion of any amount otherwise allowable as a deduction which the amount of the income of such company wholly exempt from taxes under this subtitle bears to the total of such exempt income and its gross income (excluding from gross income, for this purpose, capital gain net income, as defined in section 1222(9)).
(4) **Interest related to exempt-interest dividends** — Interest on indebtedness incurred or continued to purchase or carry shares of stock of a regulated investment company which during the taxable year of the holder thereof distributes exempt-interest dividends.
(5) **Special rules for application of paragraph (2) in the case of short sales** — For purposes of paragraph (2)—
(A) *In general* — The term “interest” includes any
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Reserve for bad debts**
(1) **In general** — Except as provided in paragraph (2), in the case of—
(A) any domestic building and loan association,
(B) any mutual savings bank, or
(C) any cooperative bank without capital stock organized and operated for mutual purposes and without profit,
there shall be allowed a deduction for a reasonable addition to a reserve for bad debts. Such deduction shall be in lieu of any deduction under section 166(a).
(2) **Organization must meet 60-percent asset test of section 7701(a)(19)** — This section shall apply to an association or bank referred to in paragraph (1) only if it meets the requirements of section 7701(a)(19)(C).
**(b) Addition to reserves for bad debts**
(1) **In general** — For purposes of subsection (a), the reasonable addition for the taxable year to the reserve for bad debts of any taxpayer described in subsection (a) shall be an amount equal to the sum of—
(A) the amount determined to be a reasonable addition to the reserve for losses on nonqualifying loans, computed in the same manner as is provided with respect to additions to the reserves for losses on loans of banks under section 585(b)(2), plus
(B) the amount determined by the taxpayer to be a reasonable addition to the reserve for losses on qualifying real property loans, but such amount shall not exceed the amount determined under paragraph (2) or (3), whichever is the larger, but the amount determined under this subparagraph shall in no case be greater than the larger of—
(i) the amount determined under paragraph (3), or
(ii) the amount which, when added to the amount determined under subparagraph (A), equals the amount by which 12 percent of the total deposits or withdrawable accounts of depositors of the taxpayer at the cl
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Federal law — U.S. Code and appendices · legal_authorities
Page 2397
TITLE 26—INTERNAL REVENUE CODE
§ 1277
(2) appropriate adjustments shall be made to
the basis of any property to reflect gain recog-
nized under subsection (a).
(Added Pub. L. 98–369, div. A, title I, § 41(a), July
18, 1984, 98 Stat. 543; amended Pub. L. 99–514,
title VI, § 631(e)(15), title XVIII, §§ 1803(a)(5),
(13)(A), 1899A(28), Oct. 22, 1986, 100 Stat. 2275,
2793,
2796,
2960;
Pub.
L.
100–647,
title
I,
§ 1018(u)(46), Nov. 10, 1988, 102 Stat. 3592; Pub. L.
103–66, title XIII, § 13206(b)(1)(A), (2)(B)(i), Aug.
10, 1993, 107 Stat. 465; Pub. L. 115–141, div. U, title
IV, § 401(a)(180), Mar. 23, 2018, 132 Stat. 1193.)
Editorial Notes
AMENDMENTS
2018—Subsec. (a)(4). Pub. L. 115–141 substituted
‘‘871(a),’’ for ‘‘871(a),,’’.
1993—Subsec. (a)(4). Pub. L. 103–66, § 13206(b)(2)(B)(i),
substituted ‘‘sections 103, 871(a),’’ for ‘‘sections 871(a)’’.
Subsec. (e). Pub. L. 103–66, § 13206(b)(1)(A), struck out
heading and text of subsec. (e). Text read as follows:
‘‘This section shall not apply to any market discount
bond issued on or before July 18, 1984.’’
1988—Subsec. (b)(3). Pub. L. 100–647 designated para-
graph relating to special rule where there are partial
principal payments as par. (3) and inserted period at
end.
1986—Subsec. (a)(3). Pub. L. 99–514, § 1803(a)(13)(A)(i),
added par. (3). Former par. (3) redesignated (4).
Subsec. (a)(4). Pub. L. 99–514, § 1803(a)(13)(A)(i), (ii), re-
designated par. (3) as (4) and substituted ‘‘under para-
graph (1) or (3)’’ for ‘‘under paragraph (1)’’.
Subsec. (b). Pub. L. 99–514, § 1803(a)(13)(A)(iii), added
undesignated par. at end relating to special rule where
partial principal payments.
Subsec. (c)(3). Pub. L. 99–514, § 631(e)(15), struck out
reference to section 334(c).
Subsec. (d)(1)(C). Pu
Source: Supplied 2024 U.S. Code historical extraction · 26 U.S.C. § 1277
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