26 U.S.C. § 834: Determination of taxable investment income

For purposes of section 831(b), the term “taxable investment income” means the gross investment income, minus the deductions provided in subsection (c). interest, dividends, rents, and royalties, the entering into of any lease, mortgage, or other instrument or agreement from which the insurance company derives interest, rents, or royalties, the alteration or termination of any instrument or agreement described in subparagraph (B), and gains from sales or exchanges of capital assets to the extent provided in subchapter P (relating to capital gains and losses). 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). The amount of interest which under section 103 is excluded for the taxable year from gross income. Investment 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. Taxes (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. The depreciation deduction allowed by section 167. All 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. the taxable investment income (computed without regard to gains or losses from sales or exchanges of capital assets); or losses from the sale or exchange of capital assets sold or exchanged to obtain funds to meet abnormal insurance losses and to provide for the payment of dividends and similar distributions to policyholders. The special deductions allowed by part VIII (except section 248) of subchapter B (sec. 241 and following, relating to dividends received). In applying section 246(b) (relating to limitation on aggregate amount of deductions for dividends received) for purposes of this paragraph, the reference in such section to “taxable income” shall be treated as a reference to “taxable investment income”. any item, to the extent attributable to the carrying on of the insurance business, shall not be taken into account, and the deduction for net operating losses provided in section 172 shall not be allowed. The deduction allowed by section 611 (relating to depletion). The deduction under subsection (c)(3) or (4) on account of any real estate owned and occupied in whole or in part by a mutual insurance company subject to the tax imposed by section 831 shall be limited to an amount which bears the same ratio to such deduction (computed without regard to this paragraph) as the rental value of the space not so occupied bears to the rental value of the entire property. in accordance with the method regularly employed by such company, if such method is reasonable, and in all other cases, in accordance with regulations prescribed by the Secretary. Nothing in this part shall permit the same item to be deducted more than once. The term “net premiums” means gross premiums (including deposits and assessments) written or received on insurance contracts during the taxable year less return premiums and premiums paid or incurred for reinsurance. Amounts returned where the amount is not fixed in the insurance contract but depends on the experience of the company or the discretion of the management shall not be included in return premiums but shall be treated as dividends to policyholders under paragraph (2). The term “dividends to policyholders” means dividends and similar distributions paid or declared to policyholders. For purposes of the preceding sentence, the term “paid or declared” shall be construed according to the method regularly employed in keeping the books of the insurance company.