---
kind: "section"
citation: "26 U.S.C. § 1233"
title: "26"
title_heading: "Internal Revenue Code"
number: "1233"
heading: "Gains and losses from short sales"
release: "119-102"
date: "2026-07-12"
url: "https://uscodex.org/usc/26/1233"
units:
  - "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"
---

# §1233. Gains and losses from short sales

- (a) **Capital assets—** For purposes of this subtitle, gain or loss from the short sale of [property](/usc/26/317.md?p=a) shall be considered as gain or loss from the [sale or exchange](/usc/26/864.md?p=c-8-D) of a [capital asset](/usc/26/1221.md?p=a) to the extent that the [property](/usc/26/317.md?p=a), including a commodity future, used to close the short sale constitutes a [capital asset](/usc/26/1221.md?p=a) in the hands of the [taxpayer](/usc/26/1313.md?p=b).
- (b) **Short-term gains and holding periods—** If gain or loss from a short sale is considered as gain or loss from the [sale or exchange](/usc/26/864.md?p=c-8-D) of a [capital asset](/usc/26/1221.md?p=a) under [subsection (a)](#a) and if on the date of such short sale substantially identical [property](/usc/26/317.md?p=a) has been held by the [taxpayer](/usc/26/1313.md?p=b) for not more than 1 year (determined without regard to the effect, under paragraph (2) of this subsection, of such short sale on the holding period), or if substantially identical [property](/usc/26/317.md?p=a) is acquired by the [taxpayer](/usc/26/1313.md?p=b) after such short sale and on or before the date of the closing thereof—
  - (1) any gain on the closing of such short sale shall be considered as a gain on the [sale or exchange](/usc/26/864.md?p=c-8-D) of a [capital asset](/usc/26/1221.md?p=a) held for not more than 1 year (notwithstanding the period of time any [property](/usc/26/317.md?p=a) used to close such short sale has been held); and
  - (2) the holding period of such substantially identical [property](/usc/26/317.md?p=a) shall be considered to begin (notwithstanding [section 1223](/usc/26/1223.md), relating to the holding period of [property](/usc/26/317.md?p=a)) on the date of the closing of the short sale, or on the date of a sale, gift, or other [disposition](/usc/26/424.md?p=c-1) of such [property](/usc/26/317.md?p=a), whichever date occurs first. This paragraph shall apply to such substantially identical [property](/usc/26/317.md?p=a) in the order of the dates of the acquisition of such [property](/usc/26/317.md?p=a), but only to so much of such [property](/usc/26/317.md?p=a) as does not exceed the quantity sold short.

  For purposes of this subsection, the acquisition of an option to sell [property](/usc/26/317.md?p=a) at a fixed price shall be considered as a short sale, and the exercise or failure to exercise such option shall be considered as a closing of such short sale.

- (c) **Certain options to sell—** [Subsection (b)](#b) shall not include an option to sell [property](/usc/26/317.md?p=a) at a fixed price acquired on the same day on which the [property](/usc/26/317.md?p=a) identified as intended to be used in exercising such option is acquired and which, if exercised, is exercised through the sale of the [property](/usc/26/317.md?p=a) so identified. If the option is not exercised, the cost of the option shall be added to the basis of the [property](/usc/26/317.md?p=a) with which the option is identified. This subsection shall apply only to options acquired after August 16, 1954.
- (d) **Long-term losses—** If on the date of such short sale substantially identical [property](/usc/26/317.md?p=a) has been held by the [taxpayer](/usc/26/1313.md?p=b) for more than 1 year, any loss on the closing of such short sale shall be considered as a loss on the [sale or exchange](/usc/26/864.md?p=c-8-D) of a [capital asset](/usc/26/1221.md?p=a) held for more than 1 year (notwithstanding the period of time any [property](/usc/26/317.md?p=a) used to close such short sale has been held, and notwithstanding [section 1234](/usc/26/1234.md)).
- (e) **Rules for application of section—**
  - (1) Subsection [(b)(1)](#b-1) or [(d)](#d) shall not apply to the gain or loss, respectively, on any quantity of [property](/usc/26/317.md?p=a) used to close such short sale which is in excess of the quantity of the substantially identical [property](/usc/26/317.md?p=a) referred to in the applicable subsection.
  - (2) For purposes of subsections [(b)](#b) and [(d)](#d)—
    - (A) the term “[property](/usc/26/317.md?p=a)” includes only [stocks](/usc/26/1504.md?p=a-4) and [securities](/usc/26/368.md?p=a-2-F-vii) (including [stocks](/usc/26/1504.md?p=a-4) and [securities](/usc/26/368.md?p=a-2-F-vii) dealt with on a “when issued” basis), and commodity futures, which are [capital assets](/usc/26/1221.md?p=a) in the hands of the [taxpayer](/usc/26/1313.md?p=b), but does not include any position to which [section 1092(b)](/usc/26/1092.md?p=b) applies;
    - (B) in the case of futures transactions in any commodity on or subject to the rules of a board of trade or commodity exchange, a commodity future requiring delivery in 1 calendar month shall not be considered as [property](/usc/26/317.md?p=a) substantially identical to another commodity future requiring delivery in a different calendar month;
    - (C) in the case of a short sale of [property](/usc/26/317.md?p=a) by an individual, the term “[taxpayer](/usc/26/1313.md?p=b)”, in the application of this subsection and subsections [(b)](#b) and [(d)](#d), shall be read as “[taxpayer](/usc/26/1313.md?p=b) or his spouse”; but an individual who is legally separated from the [taxpayer](/usc/26/1313.md?p=b) under a decree of divorce or of separate maintenance shall not be considered as the spouse of the [taxpayer](/usc/26/1313.md?p=b);
    - (D) a [securities](/usc/26/368.md?p=a-2-F-vii) futures [contract](/usc/26/101.md?p=f-3-A) (as defined in [section 1234B](/usc/26/1234B.md)) to acquire substantially identical [property](/usc/26/317.md?p=a) shall be treated as substantially identical [property](/usc/26/317.md?p=a); and
    - (E) entering into a [securities](/usc/26/368.md?p=a-2-F-vii) futures [contract](/usc/26/101.md?p=f-3-A) (as so defined) to sell shall be considered to be a short sale, and the settlement of such [contract](/usc/26/101.md?p=f-3-A) shall be considered to be the closing of such short sale.
  - (3) Where the [taxpayer](/usc/26/1313.md?p=b) enters into 2 commodity futures transactions on the same day, one requiring delivery by him in one market and the other requiring delivery to him of the same (or substantially identical) commodity in the same calendar month in a different market, and the [taxpayer](/usc/26/1313.md?p=b) subsequently closes both such transactions on the same day, subsections [(b)](#b) and [(d)](#d) shall have no application to so much of the commodity involved in either such transaction as does not exceed in quantity the commodity involved in the other.
  - (4)
    - (A) In the case of a [taxpayer](/usc/26/1313.md?p=b) who is a dealer in [securities](/usc/26/368.md?p=a-2-F-vii) (within the meaning of [section 1236](/usc/26/1236.md))—
      - (i) if, on the date of a short sale of [stock](/usc/26/1504.md?p=a-4), substantially identical [property](/usc/26/317.md?p=a) which is a [capital asset](/usc/26/1221.md?p=a) in the hands of the [taxpayer](/usc/26/1313.md?p=b) has been held for not more than 1 year, and
      - (ii) if such short sale is closed more than 20 days after the date on which it was made,

      [subsection (b)(2)](#b-2) shall apply in respect of the holding period of such substantially identical [property](/usc/26/317.md?p=a).

    - (B) For purposes of [subparagraph (A)](#e-4-A)—
      - (i) the last sentence of [subsection (b)](#b) applies; and
      - (ii) the term “[stock](/usc/26/1504.md?p=a-4)” means any share or certificate of [stock](/usc/26/1504.md?p=a-4) in a corporation, any [bond](/usc/26/150.md?p=a-1) or other evidence of indebtedness which is convertible into any such share or certificate, or any evidence of an [interest](/usc/26/856.md?p=f-1) in, or right to subscribe to or [purchase](/usc/26/1361.md?p=e-1-C), any of the foregoing.
- (f) **Arbitrage operations in securities—** In the case of a short sale which had been entered into as an arbitrage operation, to which sale the rule of [subsection (b)(2)](#b-2) would apply except as otherwise provided in this subsection—
  - (1) [subsection (b)(2)](#b-2) shall apply first to substantially identical assets acquired for arbitrage operations held at the close of business on the day such sale is made, and only to the extent that the quantity sold short exceeds the substantially identical assets acquired for arbitrage operations held at the close of business on the day such sale is made, shall the holding period of any other such identical assets held by the [taxpayer](/usc/26/1313.md?p=b) be affected;
  - (2) in the event that assets acquired for arbitrage operations are disposed of in such manner as to create a net short position in assets acquired for arbitrage operations, such net short position shall be deemed to constitute a short sale made on that day;
  - (3) for the purpose of paragraphs (1) and (2) of this subsection the [taxpayer](/usc/26/1313.md?p=b) will be deemed as of the close of any business day to hold [property](/usc/26/317.md?p=a) which he is or will be entitled to receive or acquire by virtue of any other asset acquired for arbitrage operations or by virtue of any [contract](/usc/26/101.md?p=f-3-A) he has entered into in an arbitrage operation; and
  - (4) for the purpose of this subsection arbitrage operations are transactions involving the [purchase](/usc/26/1361.md?p=e-1-C) and sale of assets for the purpose of profiting from a current difference between the price of the asset purchased and the price of the asset sold, and in which the asset purchased, if not identical to the asset sold, is such that by virtue thereof the [taxpayer](/usc/26/1313.md?p=b) is, or will be, entitled to acquire assets identical to the assets sold. Such operations must be clearly identified by the [taxpayer](/usc/26/1313.md?p=b) in his records as arbitrage operations on the day of the transaction or as soon thereafter as may be practicable. Assets acquired for arbitrage operations will include [stocks](/usc/26/1504.md?p=a-4) and [securities](/usc/26/368.md?p=a-2-F-vii) and the right to acquire [stocks](/usc/26/1504.md?p=a-4) and [securities](/usc/26/368.md?p=a-2-F-vii).
- (g) **Hedging transactions—** This section shall not apply in the case of a [hedging transaction](/usc/26/1221.md?p=b-2-A) in commodity futures.
- (h) **Short sales of property which becomes substantially worthless—**
  - (1) **In general—** If—
    - (A) the [taxpayer](/usc/26/1313.md?p=b) enters into a short sale of [property](/usc/26/317.md?p=a), and
    - (B) such [property](/usc/26/317.md?p=a) becomes substantially worthless,

    the [taxpayer](/usc/26/1313.md?p=b) shall recognize gain in the same manner as if the short sale were closed when the [property](/usc/26/317.md?p=a) becomes substantially worthless. To the extent provided in regulations prescribed by the Secretary, the preceding sentence also shall apply with respect to any option with respect to [property](/usc/26/317.md?p=a), any offsetting notional principal [contract](/usc/26/101.md?p=f-3-A) with respect to [property](/usc/26/317.md?p=a), any futures or forward [contract](/usc/26/101.md?p=f-3-A) to deliver any [property](/usc/26/317.md?p=a), and any other similar transaction.

  - (2) **Statute of limitations—** If [property](/usc/26/317.md?p=a) becomes substantially worthless during a taxable year and any short sale of such [property](/usc/26/317.md?p=a) remains open at the time such [property](/usc/26/317.md?p=a) becomes substantially worthless, then—
    - (A) the statutory period for the assessment of any deficiency attributable to any part of the gain on such transaction shall not expire before the earlier of—
      - (i) the date which is 3 years after the date the Secretary is notified by the [taxpayer](/usc/26/1313.md?p=b) (in such manner as the Secretary may by regulations prescribe) of the substantial worthlessness of such [property](/usc/26/317.md?p=a), or
      - (ii) the date which is 6 years after the date the return for such taxable year is filed, and
    - (B) such deficiency may be assessed before the date applicable under [subparagraph (A)](#h-2-A) notwithstanding the provisions of any other law or rule of law which would otherwise prevent such assessment.

## Source credit

(Aug. 16, 1954, ch. 736, 68A Stat. 327; Aug. 12, 1955, ch. 871, § 1, 69 Stat. 717; Pub. L. 85–866, title I, § 52(a), (b), Sept. 2, 1958, 72 Stat. 1643, 1644; Pub. L. 94–455, title XIV, § 1402(b)(1)(T), (2), title XIX, § 1901(a)(137), Oct. 4, 1976, 90 Stat. 1732, 1787; Pub. L. 97–34, title V, § 501(c), Aug. 13, 1981, 95 Stat. 326; Pub. L. 98–369, div. A, title X, § 1001(b)(17), (e), July 18, 1984, 98 Stat. 1012; Pub. L. 105–34, title X, § 1003(b)(1), Aug. 5, 1997, 111 Stat. 910; Pub. L. 106–554, § 1(a)(7) [title IV, § 401(f)], Dec. 21, 2000, 114 Stat. 2763, 2763A–649; Pub. L. 107–147, title IV, § 412(d)(3)(A), Mar. 9, 2002, 116 Stat. 54.)

## Notes

### Editorial Notes

### Amendments

2002—Subsec. (e)(2)(E). Pub. L. 107–147 added subpar. (E).

2000—Subsec. (e)(2)(D). Pub. L. 106–554 added subpar. (D).

1997—Subsec. (h). Pub. L. 105–34 added subsec. (h).

1984—Subsecs. (b), (d), (e)(4)(A)(i). Pub. L. 98–369 substituted “6 months” for “1 year” wherever appearing, applicable to property acquired after June 22, 1984, and before Jan. 1, 1988. See Effective Date of 1984 Amendment note below.

1981—Subsec. (e)(2)(A). Pub. L. 97–34 inserted “, but does not include any position to which section 1092(b) applies” after “taxpayer”.

1976—Subsec. (b). Pub. L. 94–455, § 1402(b)(2), provided that “9 months” would be changed to “1 year”.

Pub. L. 94–455, § 1402(b)(1)(T), (2), provided that “6 months” would be changed to “9 months” for taxable years beginning in 1977.

Subsec. (c). Pub. L. 94–455, § 1901(a)(137), substituted “August 16, 1954” for “the date of enactment of this title”.

Subsecs. (d), (e)(4)(A)(i). Pub. L. 94–455, § 1402(b)(2), provided that “9 months” would be changed to “1 year”.

Pub. L. 94–455, § 1402(b)(1)(T), provided that “6 months” would be changed to “9 months” for taxable years beginning in 1977.

1958—Subsec. (a). Pub. L. 85–866, § 52(b), struck out “, other than a hedging transaction in commodity futures,” after “sale of property”.

Subsec. (e)(4). Pub. L. 85–866, § 52(a), added par. (4).

Subsec. (g). Pub. L. 85–866, § 52(b), added subsec. (g).

1955—Subsec. (f). Act Aug. 12, 1955, added subsec. (f).

### Statutory Notes and Related Subsidiaries

### Effective Date of 2002 Amendment

Amendment by Pub. L. 107–147 effective as if included in the provisions of the Community Renewal Tax Relief Act of 2000 [H.R. 5662, as enacted by Pub. L. 106–554], to which such amendment relates, see section 412(e) of Pub. L. 107–147, set out as a note under section 151 of this title.

### Effective Date of 1997 Amendment

Pub. L. 105–34, title X, § 1003(b)(2), Aug. 5, 1997, 111 Stat. 910, provided that: “The amendment made by paragraph (1) [amending this section] shall apply to property which becomes substantially worthless after the date of the enactment of this Act [Aug. 5, 1997].”

### Effective Date of 1984 Amendment

Amendment by Pub. L. 98–369 applicable to property acquired after June 22, 1984, and before Jan. 1, 1988, see section 1001(e) of Pub. L. 98–369, set out as a note under section 166 of this title.

### Effective Date of 1981 Amendment

Amendment by Pub. L. 97–34 applicable to property acquired and positions established by the taxpayer after June 23, 1981, in taxable years ending after such date, and applicable when so elected with respect to property held on June 23, 1981, see section 508 of Pub. L. 97–34, set out as an Effective Date note under section 1092 of this title.

### Effective Date of 1976 Amendment

Pub. L. 94–455, title XIV, § 1402(b)(1), Oct. 4, 1976, 90 Stat. 1731, provided that the amendment made by that section is effective with respect to taxable years beginning in 1977.

Pub. L. 94–455, title XIV, § 1402(b)(2), Oct. 4, 1976, 90 Stat. 1732, provided that the amendment made by that section is effective with respect to taxable years beginning after Dec. 31, 1977.

Amendment by section 1901(a)(137) of 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 of 1958 Amendment

Amendment by section 52(b) of Pub. L. 85–866 applicable to taxable years beginning after Dec. 31, 1953, and ending after Aug. 16, 1954, see section 1(c)(1) of Pub. L. 85–866, set out as a note under section 165 of this title.

Pub. L. 85–866, title I, § 52(c), Sept. 2, 1958, 72 Stat. 1644, provided that: “The amendment made by subsection (a) [amending this section] shall apply with respect to short sales made after December 31, 1957.”

### Effective Date of 1955 Amendment

Act Aug. 12, 1955, ch. 871, § 2, 69 Stat. 718, provided that: “The amendment made by the first section of this Act [amending this section] shall apply only with respect to taxable years ending after the date of the enactment of this Act [Aug. 12, 1955] and only in the case of a short sale of property made by the taxpayer after such date.”