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Title 26 — Internal Revenue CodeRelease 119-83

§1236 Dealers in securities

Title 26 › Subtitle Subtitle A— - Income Taxes › Chapter CHAPTER 1— - NORMAL TAXES AND SURTAXES › Subchapter Subchapter P— - Capital Gains and Losses › Part PART IV— - SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES › § 1236

Last updated Apr 18, 2026|Official source

Summary

A dealer’s profit from selling a security is not treated as a capital gain unless two things happen. First, the dealer must have clearly marked the security in their records as held for investment before the close of the day it was bought (or by an earlier time the Secretary sets). Second, after that day the dealer must never hold it mainly to sell to customers. A dealer’s loss on a security is not treated as an ordinary loss if the security was at any time clearly marked as held for investment (except as provided in section 582(c)). “Security” means stocks, bonds, notes, debentures, or any right to buy or subscribe to those. A special rule applies to floor specialists for stock they buy while working on an exchange where they are the registered specialist. For them the deadline for marking the security is the 7th business day following the day it was acquired. A “floor specialist” is a national exchange member who is a registered specialist and meets SEC rules for specialists. If a dealer gets a security by exercising an option, the dealer can only treat it as held for investment if the option itself was clearly marked as held for investment before the close of the day the option was acquired. An “option” includes the right to subscribe to or buy a security.

Full Legal Text

Title 26, §1236

Internal Revenue Code — Source: USLM XML via OLRC

(a)Gain by a dealer in securities from the sale or exchange of any security shall in no event be considered as gain from the sale or exchange of a capital asset unless—
(1)the security was, before the close of the day on which it was acquired (or such earlier time as the Secretary may prescribe by regulations), clearly identified in the dealer’s records as a security held for investment; and
(2)the security was not, at any time after the close of such day (or such earlier time), held by such dealer primarily for sale to customers in the ordinary course of his trade or business.
(b)Loss by a dealer in securities from the sale or exchange of any security shall, except as otherwise provided in section 582(c), (relating to bond, etc., losses of banks), in no event be considered as ordinary loss if at any time the security was clearly identified in the dealer’s records as a security held for investment.
(c)For purposes of this section, the term “security” means any share of stock in any corporation, certificate of stock or interest in any corporation, note, bond, debenture, or evidence of indebtedness, or any evidence of an interest in or right to subscribe to or purchase any of the foregoing.
(d)(1)In the case of a floor specialist (but only with respect to acquisitions, in connection with his duties on an exchange, of stock in which the specialist is registered with the exchange), subsection (a) shall be applied—
(A)by inserting “the 7th business day following” before “the day” the first place it appears in paragraph (1) and by inserting “7th business” before “day” in paragraph (2), and
(B)by striking the parenthetical phrase in paragraph (1).
(2)The term “floor specialist” means a person who is—
(A)a member of a national securities exchange,
(B)is registered as a specialist with the exchange, and
(C)meets the requirements for specialists established by the Securities and Exchange Commission.
(e)For purposes of subsection (a), any security acquired by a dealer pursuant to an option held by such dealer may be treated as held for investment only if the dealer, before the close of the day on which the option was acquired, clearly identified the option on his records as held for investment. For purposes of the preceding sentence, the term “option” includes the right to subscribe to or purchase any security.

Legislative History

Notes & Related Subsidiaries

Editorial Notes

Amendments

2014—Subsec. (b). Pub. L. 113–295 struck out “after November 19, 1951,” after “time”. 1984—Subsec. (a)(1). Pub. L. 98–369, § 107(b)(1), substituted “the security was, before the close of the day on which it was acquired (or such earlier time as the Secretary may prescribe by

Regulations

), clearly identified in the dealer’s records as a security held for investment; and” for “the security was, before the close of the day on which it was acquired (before the close of the following day in the case of an acquisition before
January 1, 1982), clearly identified in the dealer’s records as a security held for investment or if acquired before
October 20, 1951, was so identified before
November 20, 1951; and”. Subsec. (a)(2). Pub. L. 98–369, § 107(b)(2), inserted “(or such earlier time)” after “such day”. 1983—Subsec. (e). Pub. L. 97–448 added subsec. (e). 1981—Subsec. (a). Pub. L. 97–34, § 506(a), substituted “before the close of the day on which it was acquired (before the close of the following day in the case of an acquisition before
January 1, 1982)” for “before the expiration of the 30th day after the date of its acquisition” in par. (1) and “close of such day” for “expiration of such 30th day” in par. (2). Subsec. (d). Pub. L. 97–34, § 506(b), added subsec. (d). 1976—Subsec. (b). Pub. L. 94–455 substituted “ordinary loss” for “loss from the sale or exchange of property which is not a capital asset”.

Statutory Notes and Related Subsidiaries

Effective Date

of 2014 AmendmentAmendment by Pub. L. 113–295 effective Dec. 19, 2014, subject to a

Savings Provision

, see section 221(b) of Pub. L. 113–295, set out as a note under section 1 of this title.

Effective Date

of 1984 AmendmentAmendment by Pub. L. 98–369 applicable to positions entered into after July 18, 1984, in taxable years ending after that date, see section 107(e) of Pub. L. 98–369, set out as a note under section 1092 of this title.

Effective Date

of 1983 Amendment Pub. L. 97–448, title I, § 105(d)(2), Jan. 12, 1983, 96 Stat. 2387, provided that: “The amendment made by paragraph (1) [amending this section] shall apply to securities acquired after September 22, 1982, in taxable years ending after such date.”

Effective Date

of 1981 AmendmentAmendment by Pub. L. 97–34 applicable to property acquired by the taxpayer after Aug. 13, 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 AmendmentAmendment 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.

Reference

Citations & Metadata

Citation

26 U.S.C. § 1236

Title 26 — Internal Revenue Code

Last Updated

Apr 18, 2026

Release point: 119-83