---
kind: "section"
citation: "26 U.S.C. § 1357"
title: "26"
title_heading: "Internal Revenue Code"
number: "1357"
heading: "Items not subject to regular tax; depreciation; interest"
release: "119-102"
date: "2026-07-12"
url: "https://uscodex.org/usc/26/1357"
units:
  - "Subtitle A — Income Taxes"
  - "Chapter 1 — Normal Taxes and Surtaxes"
  - "Subchapter R — Election To Determine Corporate Tax on Certain International Shipping Activities Using Per Ton Rate"
---

# §1357. Items not subject to regular tax; depreciation; interest

- (a) **Exclusion from gross income—** Gross income of an [electing corporation](/usc/26/1355.md?p=a-1) shall not include its income from qualifying shipping activities.
- (b) **Electing group member—** Gross income of a corporation (other than an [electing corporation](/usc/26/1355.md?p=a-1)) which is a member of an [electing group](/usc/26/1355.md?p=a-2-A) shall not include its income from qualifying shipping activities conducted by such member.
- (c) **Denial of losses, deductions, and credits—**
  - (1) **General rule—** Subject to [paragraph (2)](#c-2), each item of loss, deduction (other than for [interest](/usc/26/856.md?p=f-1) expense), or credit of any [taxpayer](/usc/26/1313.md?p=b) with respect to any activity the income from which is excluded from gross income under this section shall be disallowed.
  - (2) **Depreciation—**
    - (A) **In general—** Notwithstanding [paragraph (1)](#c-1), the adjusted basis (for purposes of determining gain) of any [qualifying vessel](/usc/26/1355.md?p=a-4) shall be determined as if the deduction for depreciation had been allowed.
    - (B) **Method—**
      - (i) **In general—** Except as provided in [clause (ii)](#c-2-B-ii), the straight-line method of depreciation shall apply to [qualifying vessels](/usc/26/1355.md?p=a-4) the income from operation of which is excluded from gross income under this section.
      - (ii) **Exception—** [Clause (i)](#c-2-B-i) shall not apply to any [qualifying vessel](/usc/26/1355.md?p=a-4) which is subject to a charter entered into before the date of the enactment of this subchapter.
  - (3) **Interest—**
    - (A) **In general—** Except as provided in [subparagraph (B)](#c-3-B), the [interest](/usc/26/856.md?p=f-1) expense of an [electing corporation](/usc/26/1355.md?p=a-1) shall be disallowed in the ratio that the fair market [value](/usc/26/851.md?p=c-4) of such corporation’s [qualifying vessels](/usc/26/1355.md?p=a-4) bears to the fair market [value](/usc/26/851.md?p=c-4) of such corporation’s total assets.
    - (B) **Electing group—** In the case of a corporation which is a member of an [electing group](/usc/26/1355.md?p=a-2-A), the [interest](/usc/26/856.md?p=f-1) expense of such corporation shall be disallowed in the ratio that the fair market [value](/usc/26/851.md?p=c-4) of such corporation’s [qualifying vessels](/usc/26/1355.md?p=a-4) bears to the fair market [value](/usc/26/851.md?p=c-4) of the [electing groups](/usc/26/1355.md?p=a-2-A) total assets.

## Source credit

(Added Pub. L. 108–357, title II, § 248(a), Oct. 22, 2004, 118 Stat. 1455.)

## Notes

### Editorial Notes

### References in Text

The date of the enactment of this subchapter, referred to in subsec. (c)(2)(B)(ii), is the date of enactment of Pub. L. 108–357, which was approved Oct. 22, 2004.

### Statutory Notes and Related Subsidiaries

### Effective Date

Section applicable to taxable years beginning after Oct. 22, 2004, see section 248(c) of Pub. L. 108–357, set out as an Effective Date of 2004 Amendments note under section 56 of this title.