26 USC § 1242 - Losses on small business investment company stock

---
identifier: "/us/usc/t26/s1242"
source: "usc"
legal_status: "official_prima_facie"
title: "26 USC § 1242 - Losses on small business investment company stock"
title_number: 26
title_name: "INTERNAL REVENUE CODE"
section_number: "1242"
section_name: "Losses on small business investment company stock"
chapter_number: 1
chapter_name: "NORMAL TAXES AND SURTAXES"
subchapter_number: "P"
subchapter_name: "Capital Gains and Losses"
part_number: "IV"
part_name: "SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES"
positive_law: false
currency: "119-84"
last_updated: "2026-04-17"
format_version: "1.1.0"
generator: "[email protected]"
source_credit: "(Added Pub. L. 85–866, title I, § 57(a), Sept. 2, 1958, 72 Stat. 1645; amended Pub. L. 94–455, title XIX, § 1901(b)(3)(F), Oct. 4, 1976, 90 Stat. 1793.)"
---


# § 1242. Losses on small business investment company stock

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.

---

**Source Credit**: (Added Pub. L. 85–866, title I, § 57(a), Sept. 2, 1958, 72 Stat. 1645; amended Pub. L. 94–455, title XIX, § 1901(b)(3)(F), Oct. 4, 1976, 90 Stat. 1793.)

## Editorial Notes

### References in Text

The Small Business Investment Act of 1958, referred to in cl. (1), is , , , 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  and Tables.

### Amendments

1976— 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 Amendment

Amendment by  applicable with respect to taxable years beginning after , see , set out as a note under .

### Effective Date

Section applicable with respect to taxable years beginning after , see , set out as an Effective Date of 1958 Amendment note under .