---
kind: "section"
citation: "26 U.S.C. § 848"
title: "26"
title_heading: "Internal Revenue Code"
number: "848"
heading: "Capitalization of certain policy acquisition expenses"
release: "119-102"
date: "2026-07-12"
url: "https://uscodex.org/usc/26/848"
units:
  - "Subtitle A — Income Taxes"
  - "Chapter 1 — Normal Taxes and Surtaxes"
  - "Subchapter L — Insurance Companies"
  - "Part III — Provisions of General Application"
---

# §848. Capitalization of certain policy acquisition expenses

- (a) **General rule—** In the case of an insurance [company](/usc/26/812.md?p=a)—
  - (1) specified policy acquisition expenses for any taxable year shall be capitalized, and
  - (2) such expenses shall be allowed as a deduction ratably over the 180-month period beginning with the first month in the second half of such taxable year.
- (b) **5-year amortization for first $5,000,000 of specified policy acquisition expenses—**
  - (1) **In general—** [Paragraph (2)](#a-2) of subsection (a) shall be applied with respect to so much of the specified policy acquisition expenses of an insurance [company](/usc/26/812.md?p=a) for any taxable year as does not exceed $5,000,000 by substituting “60-month” for “180-month”.
  - (2) **Phase-out—** If the specified policy acquisition expenses of an insurance [company](/usc/26/812.md?p=a) exceed $10,000,000 for any taxable year, the $5,000,000 amount under [paragraph (1)](#b-1) shall be reduced (but not below zero) by the amount of such excess.
  - (3) **Special rule for members of controlled group—** In the case of any [controlled group](/usc/26/414.md?p=l-2-D-v)—
    - (A) all insurance [companies](/usc/26/812.md?p=a) which are members of such group shall be treated as 1 [company](/usc/26/812.md?p=a) for purposes of this subsection, and
    - (B) the amount to which [paragraph (1)](#b-1) applies shall be allocated among such [companies](/usc/26/812.md?p=a) in such manner as the Secretary may prescribe.

    For purposes of the preceding sentence, the term “[controlled group](/usc/26/414.md?p=l-2-D-v)” means any [controlled group of corporations](/usc/26/993.md?p=a-3) as defined in [section 1563(a)](/usc/26/1563.md?p=a); except that subsections [(a)(4)](/usc/26/1563.md?p=a-4) and [(b)(2)(D)](/usc/26/1563.md?p=b-2-D) of section 1563 shall not apply, and [subsection (b)(2)(C)](/usc/26/1563.md?p=b-2-C) of section 1563 shall not apply to the extent it excludes a foreign corporation to which [section 842](/usc/26/842.md) applies.

  - (4) **Exception for acquisition expenses attributable to certain reinsurance contracts—** [Paragraph (1)](#b-1) shall not apply to any specified policy acquisition expenses for any taxable year which are attributable to premiums or other consideration under any reinsurance [contract](/usc/26/101.md?p=f-3-A).
- (c) **Specified policy acquisition expenses—** For purposes of this section—
  - (1) **In general—** The term “specified policy acquisition expenses” means, with respect to any taxable year, so much of the general deductions for such taxable year as does not exceed the sum of—
    - (A) 2.09 percent of the net premiums for such taxable year on specified insurance [contracts](/usc/26/101.md?p=f-3-A) which are [annuity contracts](/usc/26/414.md?p=z-4-B),
    - (B) 2.45 percent of the net premiums for such taxable year on specified insurance [contracts](/usc/26/101.md?p=f-3-A) which are group life insurance [contracts](/usc/26/101.md?p=f-3-A), and
    - (C) 9.2 percent of the net premiums for such taxable year on specified insurance [contracts](/usc/26/101.md?p=f-3-A) not described in subparagraph [(A)](#c-1-A) or [(B)](#c-1-B).
  - (2) **General deductions—** The term “general deductions” means the deductions provided in part VI of subchapter B ([sec. 161](/usc/26/161.md) and following, relating to [itemized deductions](/usc/26/63.md?p=d)) and in part I of subchapter D ([sec. 401](/usc/26/401.md) and following, relating to pension, profit sharing, [stock](/usc/26/1504.md?p=a-4) bonus plans, etc.).
- (d) **Net premiums—** For purposes of this section—
  - (1) **In general—** The term “net premiums” means, with respect to any category of specified insurance [contracts](/usc/26/101.md?p=f-3-A) set forth in [subsection (c)(1)](#c-1), the excess (if any) of—
    - (A) the gross amount of premiums and other consideration on such [contracts](/usc/26/101.md?p=f-3-A), over
    - (B) return premiums on such [contracts](/usc/26/101.md?p=f-3-A) and premiums and other consideration incurred for reinsurance of such [contracts](/usc/26/101.md?p=f-3-A).

    The rules of [section 803(b)](/usc/26/803.md?p=b) shall apply for purposes of the preceding sentence.

  - (2) **Amounts determined on accrual basis—** In the case of an insurance [company](/usc/26/812.md?p=a) subject to tax under part II of this subchapter, all computations entering into [determinations](/usc/26/1313.md?p=a) of net premiums for any taxable year shall be made in the manner required under [section 811(a)](/usc/26/811.md?p=a) for [life insurance companies](/usc/26/816.md?p=a).
  - (3) **Treatment of certain policyholder dividends and similar amounts—** Net premiums shall be determined without regard to [section 808(e)](/usc/26/808.md?p=e) and without regard to other similar amounts treated as paid to, and returned by, the [policyholder](/usc/26/812.md?p=b).
  - (4) **Special rules for reinsurance—**
    - (A) Premiums and other consideration incurred for reinsurance shall be taken into account under [paragraph (1)(B)](#d-1-B) only to the extent such premiums and other consideration are includible in the gross income of an insurance [company](/usc/26/812.md?p=a) taxable under this subchapter or are subject to tax under this chapter by reason of subpart F of part III of subchapter N.
    - (B) The Secretary shall prescribe such regulations as may be necessary to ensure that premiums and other consideration with respect to reinsurance are treated consistently by the ceding [company](/usc/26/812.md?p=a) and the reinsurer.
- (e) **Classification of contracts—** For purposes of this section—
  - (1) **Specified insurance contract—**
    - (A) **In general—** Except as otherwise provided in this paragraph, the term “specified insurance [contract](/usc/26/101.md?p=f-3-A)” means any life insurance, annuity, or noncancellable accident and health insurance [contract](/usc/26/101.md?p=f-3-A) (or any combination thereof).
    - (B) **Exceptions—** The term “specified insurance [contract](/usc/26/101.md?p=f-3-A)” shall not include—
      - (i) any [pension plan contract](/usc/26/818.md?p=a) (as defined in [section 818(a)](/usc/26/818.md?p=a)),
      - (ii) any flight insurance or similar [contract](/usc/26/101.md?p=f-3-A),
      - (iii) any qualified foreign [contract](/usc/26/101.md?p=f-3-A) (as defined in [section 807(e)(3)](/usc/26/807.md?p=e-3) without regard to paragraph (5) of this subsection),
      - (iv) any [contract](/usc/26/101.md?p=f-3-A) which is an Archer MSA (as defined in [section 220(d)](/usc/26/220.md?p=d)), and
      - (v) any [contract](/usc/26/101.md?p=f-3-A) which is a health savings account (as defined in [section 223(d)](/usc/26/223.md?p=d)).
  - (2) **Group life insurance contract—** The term “group life insurance [contract](/usc/26/101.md?p=f-3-A)” means any life insurance [contract](/usc/26/101.md?p=f-3-A)—
    - (A) which covers a group of individuals defined by reference to employment relationship, membership in an [organization](/usc/26/414.md?p=m-6-A), or similar factor,
    - (B) the premiums for which are determined on a group basis, and
    - (C) the proceeds of which are payable to (or for the benefit of) persons other than the employer of the [insured](/usc/26/101.md?p=j-5-B), an [organization](/usc/26/414.md?p=m-6-A) to which the [insured](/usc/26/101.md?p=j-5-B) belongs, or other similar person.
  - (3) **Treatment of annuity contracts combined with noncancellable accident and health insurance—** Any [annuity contract](/usc/26/414.md?p=z-4-B) combined with noncancellable accident and health insurance shall be treated as a noncancellable accident and health insurance [contract](/usc/26/101.md?p=f-3-A) and not as an [annuity contract](/usc/26/414.md?p=z-4-B).
  - (4) **Treatment of guaranteed renewable contracts—** The rules of [section 816(e)](/usc/26/816.md?p=e) shall apply for purposes of this section.
  - (5) **Treatment of reinsurance contract—** A [contract](/usc/26/101.md?p=f-3-A) which reinsures another [contract](/usc/26/101.md?p=f-3-A) shall be treated in the same manner as the reinsured [contract](/usc/26/101.md?p=f-3-A).
  - (6) **Treatment of certain qualified long-term care insurance contract arrangements—** An annuity or life insurance [contract](/usc/26/101.md?p=f-3-A) which includes a qualified long-term care insurance [contract](/usc/26/101.md?p=f-3-A) as a part of or a rider on such annuity or life insurance [contract](/usc/26/101.md?p=f-3-A) shall be treated as a specified insurance [contract](/usc/26/101.md?p=f-3-A) not described in subparagraph [(A)](#c-1-A) or [(B)](#c-1-B) of subsection (c)(1).
- (f) **Special rule where negative net premiums—**
  - (1) **In general—** If for any taxable year there is a negative capitalization amount with respect to any category of specified insurance [contracts](/usc/26/101.md?p=f-3-A) set forth in [subsection (c)(1)](#c-1)—
    - (A) the amount otherwise required to be capitalized under this section for such taxable year with respect to any other category of specified insurance [contracts](/usc/26/101.md?p=f-3-A) shall be reduced (but not below zero) by such negative capitalization amount, and
    - (B) such negative capitalization amount (to the extent not taken into account under [subparagraph (A)](#f-1-A))—
      - (i) shall reduce (but not below zero) the unamortized balance (as of the beginning of such taxable year) of the amounts previously capitalized under [subsection (a)](#a) (beginning with the amount capitalized for the most recent taxable year), and
      - (ii) to the extent taken into account as such a reduction, shall be allowed as a deduction for such taxable year.
  - (2) **Negative capitalization amount—** For purposes of [paragraph (1)](#f-1), the term “negative capitalization amount” means, with respect to any category of specified insurance [contracts](/usc/26/101.md?p=f-3-A), the percentage (applicable under [subsection (c)(1)](#c-1) to such category) of the amount (if any) by which—
    - (A) the amount determined under [subparagraph (B)](#d-1-B) of subsection (d)(1) with respect to such category, exceeds
    - (B) the amount determined under [subparagraph (A)](#d-1-A) of subsection (d)(1) with respect to such category.
- (g) **Treatment of certain ceding commissions—** Nothing in any provision of law (other than this section or [section 197](/usc/26/197.md)) shall require the capitalization of any ceding commission incurred on or after September 30, 1990, under any [contract](/usc/26/101.md?p=f-3-A) which reinsures a specified insurance [contract](/usc/26/101.md?p=f-3-A).
- (h) **Secretarial authority to adjust capitalization amounts—**
  - (1) **In general—** Except as provided in [paragraph (2)](#h-2), the Secretary may provide that a type of insurance [contract](/usc/26/101.md?p=f-3-A) will be treated as a separate category for purposes of this section (and prescribe a percentage applicable to such category) if the Secretary determines that the deferral of acquisition expenses for such type of [contract](/usc/26/101.md?p=f-3-A) which would otherwise result under this section is substantially greater than the deferral of acquisition expenses which would have resulted if actual acquisition expenses (including indirect expenses) and the actual useful life for such type of [contract](/usc/26/101.md?p=f-3-A) had been used.
  - (2) **Adjustment to other contracts—** If the Secretary exercises his authority with respect to any type of [contract](/usc/26/101.md?p=f-3-A) under [paragraph (1)](#h-1), the Secretary shall adjust the percentage which would otherwise have applied under [subsection (c)(1)](#c-1) to the category which includes such type of [contract](/usc/26/101.md?p=f-3-A) so that the exercise of such authority does not result in a decrease in the amount of revenue received under this chapter by reason of this section for any fiscal year.

## Source credit

(Added Pub. L. 101–508, title XI, § 11301(a), Nov. 5, 1990, 104 Stat. 1388–445; amended Pub. L. 103–66, title XIII, § 13261(d), Aug. 10, 1993, 107 Stat. 539; Pub. L. 104–191, title III, § 301(h), Aug. 21, 1996, 110 Stat. 2052; Pub. L. 106–554, § 1(a)(7) [title II, § 202(a)(5), (b)(10)], Dec. 21, 2000, 114 Stat. 2763, 2763A–628, 2763A–629; Pub. L. 108–173, title XII, § 1201(h), Dec. 8, 2003, 117 Stat. 2479; Pub. L. 109–280, title VIII, § 844(e), Aug. 17, 2006, 120 Stat. 1013; Pub. L. 113–295, div. A, title II, § 221(a)(70), Dec. 19, 2014, 128 Stat. 4048; Pub. L. 115–97, title I, §§ 12001(b)(8)(C), 13517(b)(4), 13519(a), (b), Dec. 22, 2017, 131 Stat. 2093, 2147, 2148.)

## Notes

### Editorial Notes

### Amendments

2017—Subsec. (a)(2). Pub. L. 115–97, § 13519(a)(1), substituted “180-month” for “120-month”.

Subsec. (b)(1). Pub. L. 115–97, § 13519(b), substituted “180-month” for “120-month”.

Subsec. (c)(1)(A). Pub. L. 115–97, § 13519(a)(2), substituted “2.09 percent” for “1.75 percent”.

Subsec. (c)(1)(B). Pub. L. 115–97, § 13519(a)(3), which directed substitution of “2.45 percent” for “2.05 percent” in par. (2), was executed to par. (1)(B) to reflect the probable intent of Congress.

Subsec. (c)(1)(C). Pub. L. 115–97, § 13519(a)(4), which directed substitution of “9.2 percent” for “7.7 percent” in par. (3), was executed to par. (1)(C) to reflect the probable intent of Congress. Subsec. (c) does not contain a par. (3).

Subsec. (e)(1)(B)(iii). Pub. L. 115–97, § 13517(b)(4), substituted “807(e)(3)” for “807(e)(4)”.

Subsec. (i). Pub. L. 115–97, § 12001(b)(8)(C), struck out subsec. (i). Text read as follows: “For purposes of determining adjusted current earnings under section 56(g), acquisition expenses with respect to contracts described in clause (iii) of subsection (e)(1)(B) shall be capitalized and amortized in accordance with the treatment generally required under generally accepted accounting principles as if this subsection applied to such contracts for all taxable years.”

2014—Subsec. (j). Pub. L. 113–295 struck out subsec. (j). Text read as follows: “In the case of any taxable year which includes September 30, 1990, the amount taken into account as the net premiums (or negative capitalization amount) with respect to any category of specified insurance contracts shall be the amount which bears the same ratio to the amount which (but for this subsection) would be so taken into account as the number of days in such taxable year on or after September 30, 1990, bears to the total number of days in such taxable year.”

2006—Subsec. (e)(6). Pub. L. 109–280 added par. (6).

2003—Subsec. (e)(1)(B)(v). Pub. L. 108–173 added cl. (v).

2000—Subsec. (e)(1)(B)(iv). Pub. L. 106–554, § 1(a)(7) [title II, § 202(b)(10)], substituted “an Archer MSA” for “a Archer MSA”.

Pub. L. 106–554, § 1(a)(7) [title II, § 202(a)(5)], substituted “Archer MSA” for “medical savings account”.

1996—Subsec. (e)(1)(B)(iv). Pub. L. 104–191 added cl. (iv).

1993—Subsec. (g). Pub. L. 103–66 substituted “this section or section 197” for “this section”.

### Statutory Notes and Related Subsidiaries

### Effective Date of 2017 Amendment

Amendment by section 12001(b)(8)(C) of Pub. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, see section 12001(c) of Pub. L. 115–97, set out as a note under section 11 of this title.

Amendment by section 13517(b)(4) of Pub. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, with transition rule and transition relief, see section 13517(c) of Pub. L. 115–97, set out as a note under section 807 of this title.

Pub. L. 115–97, title I, § 13519(c), Dec. 22, 2017, 131 Stat. 2148, provided that: In general.—The amendments made by this section [amending this section] shall apply to net premiums for taxable years beginning after December 31, 2017. Transition rule.—Specified policy acquisition expenses first required to be capitalized in a taxable year beginning before January 1, 2018, will continue to be allowed as a deduction ratably over the 120-month period beginning with the first month in the second half of such taxable year.”

### Effective Date of 2014 Amendment

Amendment by Pub. L. 113–295 effective Dec. 19, 2014, subject to a savings provision, see section 221(b) of Pub. L. 113–295, set out as a note under section 1 of this title.

### Effective Date of 2006 Amendment

Amendment by Pub. L. 109–280 applicable to contracts issued after Dec. 31, 1996, but only with respect to taxable years beginning after Dec. 31, 2009, and to specified policy acquisition expenses determined for taxable years beginning after Dec. 31, 2009, see section 844(g)(1), (4) of Pub. L. 109–280, set out as a note under section 72 of this title.

### Effective Date of 2003 Amendment

Amendment by Pub. L. 108–173 applicable to taxable years beginning after Dec. 31, 2003, see section 1201(k) of Pub. L. 108–173, set out as a note under section 62 of this title.

### Effective Date of 1996 Amendment

Amendment by Pub. L. 104–191 applicable to taxable years beginning after Dec. 31, 1996, see section 301(j) of Pub. L. 104–191, set out as a note under section 62 of this title.

### Effective Date of 1993 Amendment

Amendment by Pub. L. 103–66 applicable, except as otherwise provided, with respect to property acquired after Aug. 10, 1993, see section 13261(g) of Pub. L. 103–66, set out as an Effective Date note under section 197 of this title.

### Effective Date

Pub. L. 101–508, title XI, § 11301(d)(1), Nov. 5, 1990, 104 Stat. 1388–449, provided that: “The amendments made by subsections (a) and (c) [enacting this section] shall apply to taxable years ending on or after September 30, 1990. Any capitalization required by reason of such amendments shall not be treated as a change in method of accounting for purposes of the Internal Revenue Code of 1986.”