Eligibility
Available to insurance companies electing under 831(b) that experience losses, dividends, or expenses exceeding investment income and premiums.
Frequently Asked Questions
Who is eligible for the Capital Loss Deduction for Abnormal Insurance Losses?
Available to insurance companies electing under 831(b) that experience losses, dividends, or expenses exceeding investment income and premiums.
How does the Capital Loss Deduction for Abnormal Insurance Losses work?
Allows insurance companies to deduct capital losses against ordinary income if the assets were sold to meet abnormal insurance losses or pay dividends to policyholders.
What law authorizes the Capital Loss Deduction for Abnormal Insurance Losses?
The Capital Loss Deduction for Abnormal Insurance Losses is authorized under IRC §834(c)(6) of the Internal Revenue Code (Title 26, United States Code).
Statutory Text — IRC §834
Source: Internal Revenue Code, Title 26, United States Code
§ 834. Determination of taxable investment income(a) General ruleFor purposes of section 831(b), the term “taxable investment income” means the gross investment income, minus the deductions provided in subsection (c).
(b) Gross investment incomeFor purposes of subsection (a), the term “gross investment income” means the sum of the following:(1) The gross amount of income during the taxable year from—(A) interest, dividends, rents, and royalties,
(B) the entering into of any lease, mortgage, or other instrument or agreement from which the insurance company derives interest, rents, or royalties,
(C) the alteration or termination of any instrument or agreement described in subparagraph (B), and
(D) gains from sales or exchanges of capital assets to the extent provided in subchapter P (relating to capital gains and losses).
(2) The gross income during the taxable year from any trade or business (other than an insurance business) carried on by the insurance company, or by a partnership of which the insurance company is a partner. In computing gross income under this paragraph, there shall be excluded any item described in paragraph (1).
(c) DeductionsIn computing taxable investment income, the following deductions shall be allowed:(1) Tax-free interestThe amount of interest which under section 103 is excluded for the taxable year from gross income.
(2) Investment expensesInvestment expenses paid or accrued during the taxable year. If any general expenses are in part assigned to or included in the investment expenses, the total deduction under this paragraph shall not exceed one-fourth of 1 percent of the mean of the book value of the invested assets held at the beginning and end of the taxable year plus one-fourth of the amount by which taxable investment income (computed without any deduction for investment expenses allowed by this paragraph, for tax-free interest allowed by paragraph (1), or for dividends received allowed by paragraph (7)), exceeds 3¾ percent of the book value of the mean of the invested assets held at the beginning and end of the taxable year.
(3) Real estate expensesTaxes (as provided in section 164), and other expenses, paid or accrued during the taxable year exclusively on or with respect to the real estate owned by the company. No deduction shall be allowed under this paragraph for any amount paid out for new buildings, or for permanent improvements or betterments made to increase the value of any property.
(4) DepreciationThe depreciation deduction allowed by section 167.
(5) Interest paid or accruedAll interest paid or accrued within the taxable year on indebtedness, except on indebtedness incurred or continued to purchase or carry obligations the interest on which is wholly exempt from taxation under this subtitle.
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