Title 26 — Internal Revenue CodeRelease 119-83
§1236 Dealers in Securities
Title 26 › Subtitle Subtitle A— Income Taxes › Chapter 1— NORMAL TAXES AND SURTAXES › Subchapter P— Capital Gains and Losses › Part IV— SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES › § 1236
Summary
Securities dealers normally earn ordinary income, not capital gain, when they sell stocks or bonds. A dealer gets capital gain treatment on a security only if two things are true: the dealer clearly marked it in the firm's records as held for investment before the end of the day it was bought, and the dealer never afterward held it mainly for sale to customers. The flip side also applies: once a security is marked as held for investment, any loss on it cannot be treated as an ordinary loss (with a limited exception for banks). Floor specialists on a stock exchange get extra time and may make the investment designation up to the 7th business day after buying stock in which they are registered. If a dealer buys a security by exercising an option, the security can count as an investment only if the option itself was marked as held for investment by the end of the day the option was acquired.
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