26 U.S.C. § 461: General rule for taxable year of deduction

The amount of any deduction or credit allowed by this subtitle shall be taken for the taxable year which is the proper taxable year under the method of accounting used in computing taxable income. In the case of the death of a taxpayer whose taxable income is computed under an accrual method of accounting, any amount accrued as a deduction or credit only by reason of the death of the taxpayer shall not be allowed in computing taxable income for the period in which falls the date of the taxpayer’s death. If the taxable income is computed under an accrual method of accounting, then, at the election of the taxpayer, any real property tax which is related to a definite period of time shall be accrued ratably over that period. A taxpayer may, without the consent of the Secretary, make an election under this subsection for his first taxable year in which he incurs real property taxes. Such an election shall be made not later than the time prescribed by law for filing the return for such year (including extensions thereof). A taxpayer may, with the consent of the Secretary, make an election under this subsection at any time. In the case of a taxpayer whose taxable income is computed under an accrual method of accounting, to the extent that the time for accruing taxes is earlier than it would be but for any action of any taxing jurisdiction taken after December 31, 1960 , then, under regulations prescribed by the Secretary, such taxes shall be treated as accruing at the time they would have accrued but for such action by such taxing jurisdiction. Under regulations prescribed by the Secretary, paragraph (1) shall be inapplicable to any item of tax to the extent that its application would (but for this paragraph) prevent all persons (including successors in interest) from ever taking such item into account. Except as provided in regulations prescribed by the Secretary, amounts paid to, or credited to the accounts of, depositors or holders of accounts as dividends or interest on their deposits or withdrawable accounts (if such amounts paid or credited are withdrawable on demand subject only to customary notice to withdraw) by a mutual savings bank not having capital stock represented by shares, a domestic building and loan association, or a cooperative bank shall not be allowed as a deduction for the taxable year to the extent such amounts are paid or credited for periods representing more than 12 months. Any such amount not allowed as a deduction as the result of the application of the preceding sentence shall be allowed as a deduction for such other taxable year as the Secretary determines to be consistent with the preceding sentence. the taxpayer contests an asserted liability, the taxpayer transfers money or other property to provide for the satisfaction of the asserted liability, the contest with respect to the asserted liability exists after the time of the transfer, and but for the fact that the asserted liability is contested, a deduction would be allowed for the taxable year of the transfer (or for an earlier taxable year) determined after application of subsection (h), with respect to which the interest represents a charge for the use or forbearance of money, and which is after the close of the taxable year in which paid, This subsection shall not apply to points paid in respect of any indebtedness incurred in connection with the purchase or improvement of, and secured by, the principal residence of the taxpayer to the extent that, under regulations prescribed by the Secretary, such payment of points is an established business practice in the area in which such indebtedness is incurred, and the amount of such payment does not exceed the amount generally charged in such area. For purposes of this title, in determining whether an amount has been incurred with respect to any item during any taxable year, the all events test shall not be treated as met any earlier than when economic performance with respect to such item occurs. the providing of services to the taxpayer by another person, economic performance occurs as such person provides such services, the providing of property to the taxpayer by another person, economic performance occurs as the person provides such property, or the use of property by the taxpayer, economic performance occurs as the taxpayer uses such property. If the liability of the taxpayer requires the taxpayer to provide property or services, economic performance occurs as the taxpayer provides such property or services. arises under any workers compensation act, or arises out of any tort, In the case of any other liability of the taxpayer, economic performance occurs at the time determined under regulations prescribed by the Secretary. the all events test with respect to such item is met during such taxable year (determined without regard to paragraph (1)), a reasonable period after the close of such taxable year, or 8½ months after the close of such taxable year, such item is recurring in nature and the taxpayer consistently treats items of such kind as incurred in the taxable year in which the requirements of clause (i) are met, and such item is not a material item, or the accrual of such item in the taxable year in which the requirements of clause (i) are met results in a more proper match against income than accruing such item in the taxable year in which economic performance occurs. In making a determination under subparagraph (A)(iv), the treatment of such item on financial statements shall be taken into account. This paragraph shall not apply to any item described in subparagraph (C) of paragraph (2). For purposes of this subsection, the all events test is met with respect to any item if all events have occurred which determine the fact of liability and the amount of such liability can be determined with reasonable accuracy. This subsection shall not apply to any item for which a deduction is allowable under a provision of this title which specifically provides for a deduction for a reserve for estimated expenses. In the case of a tax shelter, economic performance shall be determined without regard to paragraph (3) of subsection (h). In the case of a tax shelter, economic performance with respect to amounts paid during the taxable year for drilling an oil or gas well shall be treated as having occurred within a taxable year if drilling of the well commences before the close of the 90th day after the close of the taxable year. In the case of a tax shelter which is a partnership, in applying section 704(d) to a deduction or loss for any taxable year attributable to an item which is deductible by reason of subparagraph (A), the term “cash basis” shall be substituted for the term “adjusted basis”. Under regulations prescribed by the Secretary, in the case of a tax shelter other than a partnership, the aggregate amount of the deductions allowable by reason of subparagraph (A) for any taxable year shall be limited in a manner similar to the limitation under clause (i). any liability of the partnership, and was arranged by the partnership or by any person who participated in the organization, sale, or management of the partnership (or any person related to such person within the meaning of section 465(b)(3)(C)), or was secured by any asset of the partnership. any enterprise (other than a C corporation) if at any time interests in such enterprise have been offered for sale in any offering required to be registered with any Federal or State agency having the authority to regulate the offering of securities for sale, any syndicate (within the meaning of section 1256(e)(3)(B)), and any tax shelter (as defined in section 6662(d)(2)(C)(ii)). In the case of the trade or business of farming (as defined in section 464(e)), in determining whether an entity is a tax shelter, the definition of farming syndicate in subsection (k) shall be substituted for subparagraphs (A) and (B) of paragraph (3). For purposes of this subsection, the term “economic performance” has the meaning given such term by subsection (h). If a taxpayer other than a C corporation receives any applicable subsidy for any taxable year, any excess farm loss of the taxpayer for the taxable year shall not be allowed. Any loss which is disallowed under paragraph (1) shall be treated as a deduction of the taxpayer attributable to farming businesses in the next taxable year. any direct or counter-cyclical payment under title I of the Food, Conservation, and Energy Act of 2008, or any payment elected to be received in lieu of any such payment, or any Commodity Credit Corporation loan. the aggregate deductions of the taxpayer for the taxable year which are attributable to farming businesses of such taxpayer (determined without regard to whether or not such deductions are disallowed for such taxable year under paragraph (1)), over the aggregate gross income or gain of such taxpayer for the taxable year which is attributable to such farming businesses, plus the threshold amount for the taxable year. $300,000 ($150,000 in the case of married individuals filing separately), or the excess (if any) of the aggregate amounts described in subparagraph (A)(ii)(I) for the 5-consecutive taxable year period preceding the taxable year over the aggregate amounts described in subparagraph (A)(i) for such period. notwithstanding the disregard in subparagraph (A)(i) of any disallowance under paragraph (1), in the case of any loss which is carried forward under paragraph (2) from any taxable year, such loss (or any portion thereof) shall be taken into account for the first taxable year in which a deduction for such loss (or portion) is not disallowed by reason of this subsection, and the Secretary shall prescribe rules for the computation of the aggregate amounts described in such clause in cases where the filing status of the taxpayer is not the same for the taxable year and each of the taxable years in the period described in such clause. The term “farming business” has the meaning given such term in section 263A(e)(4). the term “farming business” shall include any trade or business of the taxpayer of the processing of such commodity (without regard to whether the processing is incidental to the growing, raising, or harvesting of such commodity), and if the taxpayer is a member of a cooperative to which subchapter T applies, any trade or business of the cooperative described in subclause (I) shall be treated as the trade or business of the taxpayer. For purposes of subparagraph (A)(i), there shall not be taken into account any deduction for any loss arising by reason of fire, storm, or other casualty, or by reason of disease or drought, involving any farming business. this subsection shall be applied at the partner or shareholder level, and each partner’s or shareholder’s proportionate share of the items of income, gain, or deduction of the partnership or S corporation for any taxable year from farming businesses attributable to the partnership or S corporation, and of any applicable subsidies received by the partnership or S corporation during the taxable year, shall be taken into account by the partner or shareholder in applying this subsection to the taxable year of such partner or shareholder with or within which the taxable year of the partnership or S corporation ends. The Secretary may prescribe such additional reporting requirements as the Secretary determines appropriate to carry out the purposes of this subsection. This subsection shall be applied before the application of section 469. a partnership or any other enterprise other than a corporation which is not an S corporation engaged in the trade or business of farming, if at any time interests in such partnership or enterprise have been offered for sale in any offering required to be registered with any Federal or State agency having authority to regulate the offering of securities for sale, or a partnership or any other enterprise other than a corporation which is not an S corporation engaged in the trade or business of farming, if more than 35 percent of the losses during any period are allocable to limited partners or limited entrepreneurs. in the case of any individual who has actively participated (for a period of not less than 5 years) in the management of any trade or business of farming, any interest in a partnership or other enterprise which is attributable to such active participation, in the case of any individual whose principal residence is on a farm, any partnership or other enterprise engaged in the trade or business of farming such farm, in the case of any individual who is actively participating in the management of any trade or business of farming or who is an individual who is described in subparagraph (A) or (B), any participation in the further processing of livestock which was raised in such trade or business (or in the trade or business referred to in subparagraph (A) or (B)), in the case of an individual whose principal business activity involves active participation in the management of a trade or business of farming, any interest in any other trade or business of farming, and, any interest held by a member of the family (or a spouse of any such member) of a grandparent of an individual described in subparagraph (A), (B), (C), or (D) if the interest in the partnership or the enterprise is attributable to the active participation of the individual described in subparagraph (A), (B), (C), or (D). For purposes of this subsection, the term “farming” has the meaning given to such term by section 464(e). has an interest in an enterprise other than as a limited partner, and does not actively participate in the management of such enterprise. for any taxable year beginning after December 31, 2017 , and before January 1, 2027 , subsection (j) (relating to limitation on excess farm losses of certain taxpayers) shall not apply, and for any taxable year beginning after December 31, 2020 , and before January 1, 2027 , any excess business loss of the taxpayer for the taxable year shall not be allowed. Any loss which is disallowed under paragraph (1) shall be treated as a net operating loss for the taxable year for purposes of determining any net operating loss carryover under section 172(b) for subsequent taxable years. the aggregate deductions of the taxpayer for the taxable year which are attributable to trades or businesses of such taxpayer (determined without regard to whether or not such deductions are disallowed for such taxable year under paragraph (1) and without regard to any deduction allowable under section 172 or 199A), over the aggregate gross income or gain of such taxpayer for the taxable year which is attributable to such trades or businesses, plus $250,000 (200 percent of such amount in the case of a joint return). Deductions for losses from sales or exchanges of capital assets shall not be taken into account under subparagraph (A)(i). the capital gain net income determined by taking into account only gains and losses attributable to a trade or business, or the capital gain net income. such dollar amount, multiplied by the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting “2024” for “2016” in subparagraph (A)(ii) thereof. this subsection shall be applied at the partner or shareholder level, and each partner’s or shareholder’s allocable share of the items of income, gain, deduction, or loss of the partnership or S corporation for any taxable year from trades or businesses attributable to the partnership or S corporation shall be taken into account by the partner or shareholder in applying this subsection to the taxable year of such partner or shareholder with or within which the taxable year of the partnership or S corporation ends. The Secretary shall prescribe such additional reporting requirements as the Secretary determines necessary to carry out the purposes of this subsection. This subsection shall be applied after the application of section 469. The amendments made by subsection (a) [amending this section] shall apply to taxable years beginning after December 31, 2026 . The amendments made by subsection (b) [amending this section] shall apply to taxable years beginning after December 31, 2025 .” The amendments made by subsection (a) [amending this section] shall apply to taxable years beginning after December 31, 2017 . The amendments made by subsection (b) [amending this section] shall take effect as if included in the provisions of Public Law 115–97 to which they relate.” in the case of amounts to which section 461(h) of such Code (as added by such amendments) applies, the date of the enactment of this Act [ July 18, 1984 ], and in the case of amounts to which section 461(i) of such Code (as so added) applies, after March 31, 1984 . are incurred on or before the date of the enactment of this Act [ July 18, 1984 ] (determined without regard to such amendments), and are incurred after the date of the enactment of this Act (determined with regard to such amendments). initiated by the taxpayer, made with the consent of the Secretary of the Treasury, and with respect to which section 481 of such Code shall be applied by substituting a 3-year adjustment period for a 10-year adjustment period. Notwithstanding paragraph (1), section 461(h) of the Internal Revenue Code of 1986 (as added by this section) shall be treated as being in effect to the extent necessary to carry out any amendments made by this section which take effect before section 461(h). Except as otherwise provided in subsection (h), the amendments made by subsection (b) [enacting section 468 of this title ] shall take effect on the date of the enactment of this Act [ July 18, 1984 ] with respect to taxable years ending after such date. The amendments made by subsections (c) and (f) [enacting sections 88 and 468A of this title] shall take effect on the date of the enactment of this Act [ July 18, 1984 ] with respect to taxable years ending after such date. The amendments made by subsection (d) [amending section 172 of this title ] shall apply to losses for taxable years beginning after December 31, 1983 . for land disturbed before the date of the enactment of this Act [ July 18, 1984 ], or to which paragraph (2) applies, In the case of any fixed price supply contract entered into before March 1, 1984 , the amendments made by subsection (b) [enacting section 468 of this title ] shall not apply to any minerals extracted from such property which are sold pursuant to such contract. to any extension of any contract beyond the period such contract was in effect on March 1, 1984 , or to any renegotiation of, or other change in, the terms and conditions of such contract in effect on March 1, 1984 . with respect to whom a deduction was allowable (other than under section 463 of the Internal Revenue Code of 1986) for vested accrued vacation pay for the last taxable year ending before the date of the enactment of this Act [ July 18, 1984 ], and who elects the application of section 463 of such Code for the first taxable year ending after the date of the enactment of this Act, For purposes of this subsection, the term ‘vested accrued vacation pay’ means any amount allowable under section 162(a) of such Code with respect to vacation pay of employees of the taxpayer (determined without regard to section 463 of such Code).” Except as provided in paragraph (2), the amendment made by subsection (a) [amending this section] shall apply to amounts paid after December 31, 1975 , in taxable years ending after such date. The amendment made by subsection (a) [amending this section] shall not apply to amounts paid before January 1, 1977 , pursuant to a binding contract or written loan commitment which existed on September 16, 1975 (and at all times thereafter), and which required prepayment of such amounts by the taxpayer.” the amendment made by subsection (a)(1) [amending this section] shall apply to taxable years beginning after December 31, 1953 , and ending after August 16, 1954 , and the amendment made by subsection (a)(2) [amending section 43 of the Internal Revenue Code of 1939] shall apply to taxable years to which the Internal Revenue Code of 1939 applies.” such payment was made before November 23, 1985 , for indemnification against a tort liability relating to personal injury or death caused by inhalation or ingestion of dust from asbestos-containing insulation products, such insurance company is unrelated to taxpayer, such payment is not refundable, and the taxpayer is not engaged in the mining of asbestos nor is any member of any affiliated group which includes the taxpayer so engaged.” is a partnership which was founded in 1936, has over 1,000 professional employees, used a long-term contract method of accounting for a substantial part of its income from the performance of architectural and engineering services, and is headquartered in Chicago, Illinois.” must be made within one year after the date of the enactment of this Act [ Feb. 26, 1964 ], may not be revoked after the expiration of such one-year period, and shall apply to all transfers described in the first sentence of this paragraph (other than transfers described in paragraph (2)). Paragraph (1) shall not apply to any transfer if the assessment of any deficiency which would result from the application of the election in respect of such transfer is, on the date of the election under paragraph (1), prevented by the operation of any law or rule of law. If the taxpayer makes an election under paragraph (1), and if, on the date of such election, the assessment of any deficiency which results from the application of the election in respect of any transfer is not prevented by the operation of any law or rule of law, the period within which assessment of such deficiency may be made shall not expire earlier than 2 years after the date of the enactment of this Act [ Feb. 26, 1964 ].” no deduction has been allowed in respect of such transfer for any taxable year before the taxable year in which the contest with respect to such transfer is settled, and refund or credit of any overpayment which would result from the application of such amendments to such transfer is prevented by the operation of any law or rule of law.