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Title 26, Internal Revenue CodeRelease 119-110

§1242 Losses on Small Business Investment Company Stock

Title 26 › 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 › § 1242

Last updated Sep 22, 2026|Official source

Summary

Losses on stock in a Small Business Investment Company under the Small Business Investment Act of 1958 must be treated as ordinary losses. They count as business losses when computing net operating losses (section 172).

Full Legal Text

Title 26, §1242

Internal Revenue Code, Source: USLM XML via OLRC

If—
(1)a loss is on stock in a small business investment company operating under the Small Business Investment Act of 1958, and
(2)such loss would (but for this section) be a loss from the sale or exchange of a capital asset,
then such loss shall be treated as an ordinary loss. For purposes of section 172 (relating to the net operating loss deduction) any amount of loss treated by reason of this section as an ordinary loss shall be treated as attributable to a trade or business of the taxpayer.

Legislative History

Notes & Related Subsidiaries

Editorial Notes

References in Text

The Small Business Investment Act of 1958, referred to in cl. (1), is Pub. L. 85–699, Aug. 21, 1958, 72 Stat. 689, which is classified principally to chapter 14B (§ 661 et seq.) of Title 15, Commerce and Trade. For complete classification of this Act to the Code, see

Short Title

note set out under section 661 of Title 15 and Tables.

Amendments

1976—Pub. L. 94–455 substituted “an ordinary loss” for “a loss from the sale or exchange of property which is not a capital asset”, each time appearing.

Statutory Notes and Related Subsidiaries

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.

Effective Date

Section applicable with respect to taxable years beginning after Sept. 2, 1958, see section 57(d) of Pub. L. 85–866, set out as an

Effective Date

of 1958 Amendment note under section 243 of this title.

Reference

Citations & Metadata

Citation

26 U.S.C. § 1242

Title 26, Internal Revenue Code

Last Updated

Sep 22, 2026

Release point: 119-110