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Treasury Regulations · 26 CFR

§ 1.383-1. Special limitations on certain capital losses and excess credits.

In effect eCFR current as of October 15, 2026

Regulation text, no changes From the eCFR, current as of October 15, 2026. The eCFR is an authoritative but unofficial editorial compilation of the Code of Federal Regulations; the official text is the annual CFR on govinfo. Compare it with this section on ecfr.gov (external site) or the official annual CFR on govinfo (external site).

Regulation under 26 U.S.C. § 383

Cite as 26 CFR § 1.383-1

At a glance

Read from the text and its source citation. Not part of the regulation.

Status
In the current eCFR
Issued
September 20, 1989 by T.D. 8264
Last amended
September 14, 2020 by T.D. 9905
Issued under
26 U.S.C. § 383
Length
4,083 words · about 18 min to read
Defines
5 terms
Cross-references
cites 17 Code sections and 6 regulations; cited by 5
(a) Outline of topics. In order to facilitate the use of this section, this paragraph lists the paragraphs, subparagraphs and subdivisions contained in this section.

(a) Outline of topics.

(b) In general.

(c) Definitions.

(1) Coordination with definitions and nomenclature used in section 382.

(2) Pre-change capital loss.

(3) Pre-change credit.

(4) Pre-change loss.

(5) Regular tax liability.

(6) Section 383 credit limitation.

(i) Definition.

(ii) Example.

(d) Limitation on use of pre-change losses and pre-change credits.

(1) In general.

(i) In general.

(ii) Ordering rule for losses or credits from same taxable year.

(2) Ordering rules for utilization of pre-change losses and pre-change credits and for absorption of the section 382 limitation and the section 383 credit limitation.

(3) Coordination with other limitations.

(i) In general.

(ii) Examples.

(e) Carryforward of unused section 382 limitation.

(1) Computation of carryforward amount.

(2) Section 383 credit reduction amount.

(3) [Reserved]

(4) Special rules for determining the section 383 credit reduction amount.

(i) Ordering rules.

(ii) Special rule for credits under section 38(a).

(f) Examples.

(g) Coordination with section 382 and the regulations thereunder.

(h) Alternative minimum tax.

(i) [Reserved]

(j) Applicability date.

(1) In general.

(2) Interaction with section 163(j).

(b) In general. Under section 383, if an ownership change occurs with respect to a loss corporation, the section 382 limitation and the section 383 credit limitation (as defined in paragraph (c)(6) of this section) for a post-change year shall apply to limit the amount of taxable income and regular tax liability, respectively, that can be offset by pre-change capital losses and pre-change credits of the new loss corporation. The section 383 credit limitation for a post-change year bears a direct relationship to the amount, if any, of the section 382 limitation that remains after taking into account the reduction in the loss corporation's taxable income during a post-change year as a result of its pre-change losses (as defined in paragraph (c)(4) of this section). In general, the section 383 credit limitation is an amount equal to the tax liability of the new loss corporation for the post-change year which is attributable to so much of the corporation's taxable income that would be reduced by allowing as a deduction its section 382 limitation remaining after accounting for the use of pre-change losses. As pre-change losses and pre-change credits of a corporation are used, they absorb the section 382 limitation and the section 383 credit limitation, respectively, in the manner prescribed by paragraph (d) of this section. See also section 382 and the regulations thereunder.
(c) Definitions—
(1) Coordination with definitions and nomenclature used in section 382. Terms and nomenclature used in this section, and not otherwise defined herein, shall have the same respective meanings as in section 382 and the regulations thereunder, taking into account that the limitations of section 383 and this section apply to pre-change capital losses and pre-change credits.
(2) Pre-change capital loss. The term pre-change capital loss means—
(i) Any capital loss carryover under section 1212 of the old loss corporation to the taxable year ending on the change date or in which the change date occurs,
(ii) Any net capital loss of the old loss corporation for the taxable year in which the ownership change occurs, to the extent such loss is allocable to the period in such year ending on or before the change date, and
(iii) If the old loss corporation has a net unrealized built-in loss, any recognized built-in loss for any recognition period taxable year (within the meaning of section 382(h)) that is a capital loss.
(3) Pre-change credit. The term pre-change credit means—
(i) Any excess foreign taxes under section 904(c) of the old loss corporation—
(A) carried forward to the taxable year ending on the change date or in which the change date occurs, or
(B) carried forward from the taxable year that includes the change date, to the extent such credit is allocable to the period in such year ending on or before the change date,
(ii) Any credit under section 38 of the old loss corporation—
(A) carried forward to the taxable year ending on the change date or in which the change date occurs, or
(B) carried forward from a taxable year that includes the change date to the extent such credit is allocable to the period in such year ending on or before the change date, and
(iii) The available minimum tax credit of the old loss corporation under section 53 to the extent attributable to periods ending on or before the change date.
(4) Pre-change loss. Solely for purposes of this section, the term prechange loss means any pre-change loss described in § 1.382-2(a)(2) other than pre-change credits described in paragraph (c)(3) of this section.
(5) Regular tax liability. For purposes of this section, the term regular tax liability has the same meaning as provided in section 26(b).
(6) Section 383 credit limitation—
(i) Definition. The section 383 credit limitation for a post-change year of a new loss corporation is an amount equal to the excess of—
(A) The new loss corporation's regular tax liability for the post-change year, over
(B) The new loss corporation's regular tax liability for the post-change year computed, for this purpose, by allowing as an additional deduction an amount equal to the section 382 limitation remaining after the application of paragraphs (d)(2)(i) through (v) of this section.
(ii) Example. L, a new loss corporation, is a calendar-year taxpayer. L has an ownership change on December 31, 2021. For 2022, L has taxable income (prior to the use of any pre-change losses) of $100,000. In addition, L has a section 382 limitation of $25,000, a pre-change net operating loss carryover of $12,000, a pre-change general business credit carryforward under section 39 of $50,000, and no items described in § 1.383-1(d)(2)(i) through (iv). L's section 383 credit limitation for 2022 is the excess of its regular tax liability computed after allowing a $12,000 net operating loss deduction (taxable income of $88,000; regular tax liability of $18,480), over its regular tax liability computed after allowing an additional deduction in the amount of L's section 382 limitation remaining after the application of paragraphs (d)(2)(i) through (v) of this section, or $13,000 (taxable income of $75,000; regular tax liability of $15,750). L's section 383 credit limitation is therefore $2,730 ($18,480 minus $15,750).
(d) Limitation on use of pre-change losses and pre-change credits—
(1) In general—
(i) General rule. The amount of taxable income of a new loss corporation for any post-change year that may be offset by pre-change losses shall not exceed the amount of the section 382 limitation for the post-change year. The amount of the regular tax liability of a new loss corporation for any post-change year that may be offset by pre-change credits shall not exceed the amount of the section 383 credit limitation for the post-change year.
(ii) Ordering rule for losses or credits from same taxable year. A loss corporation's taxable income is offset first by losses subject to a section 382 limitation, to the extent the section 382 limitation for that taxable year has not yet been absorbed, before being offset by losses of the same type from the same taxable year that are not subject to a section 382 limitation. For example, assume that Corporation X has an ownership change in Year 1 and carries over disallowed business interest expense as defined in § 1.163(j)-1(b)(10), some of which constitutes a section 382 disallowed business interest carryforward, from Year 1 to Year 2. To the extent of its section 163(j) limitation, as defined in § 1.163(j)-1(b)(36), and its remaining section 382 limitation, Corporation X offsets its Year 2 income with the section 382 disallowed business interest carryforward before using any of the disallowed business interest expense that is not a section 382 disallowed business interest carryforward. Similar principles apply to the use of tax credits.
(2) Ordering rules for utilization of pre-change losses and pre-change credits and for absorption of the section 382 limitation and the section 383 credit limitation. Pre-change losses described in any subdivision of this paragraph (d)(2) can offset taxable income in a post-change year only to the extent that the section 382 limitation for that year has not been absorbed by pre-change losses described in any lower-numbered subdivisions. Pre-change credits described in any subdivision of this paragraph (d)(2) can offset regular tax liability in a post-change year only to the extent that the section 383 credit limitation for that year has not been absorbed by pre-change credits described in any lower numbered subdivisions. The section 382 limitation is absorbed by one dollar for each dollar of pre-change loss that is used to offset taxable income. The section 383 credit limitation is absorbed by one dollar for each dollar of pre-change credit that is used to offset regular tax liability. For each post-change year, the section 382 limitation and the section 383 credit limitation of a new loss corporation are absorbed by such corporation's pre-change losses and pre-change credits in the following order:
(i) Pre-change capital losses described in paragraph (c)(2)(iii) of this section that are recognized and are subject to the section 382 limitation in such post-change year;
(ii) Pre-change capital losses described in paragraphs (c)(2)(i) and (ii) of this section;
(iii) Pre-change losses that are described in § 1.382-2(a)(2)(iii), other than losses that are pre-change capital losses, that are recognized and are subject to the section 382 limitation in such post-change year;
(iv)
(A) With respect to an ownership change date occurring prior to November 13, 2020, but during the taxable year which includes November 13, 2020, the pre-change loss described in section 382(d)(3);
(B) With respect to an ownership change date occurring on or after November 13, 2020, section 382 disallowed business interest carryforwards (within the meaning of § 1.382-2(a)(7));
(v) Pre-change losses not described in paragraphs (d)(2)(i) through (iv) of this section;
(vi) Pre-change credits described in paragraph (c)(3)(i) of this section (excess foreign taxes),
(vii) Pre-change credits described in paragraph (c)(3)(ii) of this section (business credits); and
(viii) Pre-change credits described in paragraph (c)(3)(iii) of this section (minimum tax credit).
(3) Coordination with other limitations—
(i) In general. Paragraphs (d)(1) and (2) of this section shall be applied after the application of all other limitations contained in subtitle A which are applicable to the use of a pre-change loss or pre-change credit in a post-change year. Thus, only otherwise currently allowable pre-change losses and pre-change credits will result in the absorption of the section 382 limitation and the section 383 credit limitation. The application of section 59A is not a limitation contained in subtitle A for purposes of this paragraph (d)(3)(i). Therefore, the treatment of pre-change losses and pre-change credits in the computation of the base erosion minimum tax amount will not affect whether such losses or credits result in absorption of the section 382 limitation and the section 383 credit limitation.
(ii) Example. L, a calendar-year taxpayer, has an ownership change on December 31, 2021. For 2022, L has taxable income of $300,000 and a regular tax liability of $63,000. L has no pre-change losses, but it has a business credit carryforward from 2020 of $25,000. L has a section 382 limitation for 2022 of $50,000. L's section 383 credit limitation is $10,500, an amount equal to the excess of L's regular tax liability ($63,000) over its regular tax liability calculated by allowing an additional deduction of $50,000 ($52,500). Pursuant to the limitation contained in section 38(c), however, L is entitled to use only $9,500 (($63,000−$25,000) × 25 percent) of its business credit carryforward in 2022. The unabsorbed portion of L's section 382 limitation, $1,000 (computed pursuant to paragraph (e) of this section), is carried forward under section 382(b)(2). The unused portion of L's business credit carryforward, $14,500, is carried forward to the extent provided in section 39.
(e) Carryforward of unused section 382 limitation—
(1) Computation of carryforward amount. The section 382 limitation that can be carried forward under section 382(b)(2) is the excess, if any, of (i) the section 382 limitation for the post-change year remaining after the application of paragraphs (d)(2)(i) through (v) of this section, over (ii) the section 383 credit reduction amount for that post-change year.
(2) Section 383 credit reduction amount. The section 383 credit reduction amount for a post-change year is equal to the amount of taxable income attributable to the portion of the new loss corporation's regular tax liability for the year that is offset by pre-change credits. Each dollar of regular tax liability that is offset by a dollar of pre-change credit is divided by the effective marginal rate at which that dollar of tax was imposed to determine the amount of taxable income that resulted in that particular dollar of regular tax liability. The sum of these “grossed-up” amounts for the taxable year is the section 383 credit reduction amount. In determining the effective marginal rate at which a dollar of tax was imposed, special rules regarding rates of tax (e.g., section 15 or taxable income brackets (e.g., section 1561), or both, shall be taken into account.
(3) [Reserved]
(4) Special rules for determining the section 383 credit reduction amount—
(i) Ordering rules. For purposes of this paragraph (e), credits, including pre-change credits, are considered to offset regular tax liability in the order that such credits are applied under the ordering rules of part IV of subchapter A of chapter 1 and section 904. For example, for purposes of this paragraph (e), excess foreign taxes carried over under section 904(c) (whether or not a pre-change credit) are considered (under section 38(c)) to offset regular tax liability before the general business credit carryovers to the taxable year are considered (under section 39) to offset regular tax liability before general business credits arising in the taxable year.
(ii) Special rule for credits under section 38(a). For purposes of applying this paragraph (e), credits under section 38(a) that, under section 38(c)(2) as applicable, taking into account amendments made by section 11813 of the Revenue Reconciliation Act of 1990, effectively offset both regular tax liability and the tax imposed by section 55 (relating to minimum tax), are considered to offset regular tax liability.
(f) Examples. The following examples illustrate the operation of paragraphs (b) through (e) of this section. For purposes of these examples, the term modified tax liability means the amount determined under paragraph (c)(6)(i)(B) of this section.
(1) Example 1.
(i) L, a calendar year taxpayer, has an ownership change on December 31, 1987. Before the application of carryovers, L, a new loss corporation, has $60,000 of capital gain, $100,000 of ordinary taxable income and a section 382 limitation of $100,000 for its first post-change year beginning after the change date. L's only carryovers are an $80,000 capital loss carryover and a $100,000 net operating loss carryover. Both carryovers are from taxable years ending before the change date and thus are pre-change losses.
(ii) L first uses $60,000 of its pre-change capital loss carryover to offset its capital gain. This reduces its section 382 limitation to $40,000 (i.e., $100,000−$60,000). L's pre-change net operating loss carryover can therefore be used only to the extent of $40,000. L's remaining $20,000 pre-change capital loss carryover and remaining $60,000 pre-change net operating loss carryover are carried to later years to the extent permitted under this section and sections 172, 382(l)(2) and 1212.
(2) Example 2—
(i) Facts. L, a calendar-year taxpayer, has an ownership change on December 31, 2021. For 2022, L has $750,000 of ordinary taxable income (before the application of carryovers) and a section 382 limitation of $1,500,000. L's only carryovers are from pre-2021 taxable years and consist of a $500,000 net operating loss (NOL) carryover, and a $200,000 foreign tax credit carryover (all of which may be used under the section 904 limitation). The NOL carryover is a pre-change loss, and the foreign tax credit carryover is a pre-change credit. L has no other pre-change losses or credits that can be used in 2022.
(ii) Analysis. The following computation illustrates the application of this section for 2022:

Table 1 to Paragraph (f)(2)(ii)

1. Taxable income before carryovers$750,000
2. Pre-change NOL carryover500,000
3. Section 382 limitation1,500,000
4. Amount of pre-change NOL carryover that can be used (least of line 1, 2, or 3)500,000
5. Taxable income (line 1 minus line 4)250,000
6. Section 382 limitation remaining (line 3 minus line 4)1,000,000
7. Pre-change credit carryover200,000
8. Regular tax liability (line 5 × section 11 rates)52,500
9. Modified tax liability (line 5 minus line 6 (but not less than zero) × section 11 rates)0
10. Section 383 credit limitation (line 8 minus line 9)52,500
11. Amount of pre-change credits that can be used in 2022 (lesser of line 7 or line 10)52,500
12. Amount of pre-change credits to be carried over to 2023 under section 904(c) (line 7 minus line 11)147,500
13. Section 383 credit reduction amount: $52,500/0.21250,000
14. Section 382 limitation to be carried to 2023 under section 382(b)(2) (line 6 minus line 13)750,000
(3) Example 3—
(i) Facts. L, a calendar-year taxpayer, has an ownership change on December 31, 2021. L has $80,000 of ordinary taxable income (before the application of carryovers) and a section 382 limitation of $25,000 for 2022, a post-change year. L's only carryover is from a pre-2021 taxable year and is a general business credit carryforward under section 39 in the amount of $10,000 (no portion of which is attributable to the investment tax credit under section 46). The general business credit carryforward is a pre-change credit. L has no other credits which can be used in 2022.
(ii) Analysis. The following computation illustrates the application of this section:

Table 2 to paragraph (f)(3)(ii)

1. Taxable income before carryovers$80,000
2. Section 382 limitation25,000
3. Pre-change credit carryover10,000
4. Regular tax liability (line 1 × section 11 rates)16,800
5. Modified tax liability ((line 1 minus line 2) × section 11 rates)11,550
6. Section 383 credit limitation (line 4 minus line 5)5,250
7. Amount of pre-change credits that can be used (lesser of line 3 or line 6)5,250
8. Amount of pre-change credits to be carried over to 2023 under sections 39 and 382(l)(2) (line 3 minus line 7)4,750
9. Regular tax payable (line 4 minus line 7)11,550
10. Section 383 credit reduction amount: $5,250/0.2125,000
11. Section 382 limitation to be carried to 2023 under section 382(b)(2) (line 2 minus line 10)0
(g) Coordination with section 382 and the regulations thereunder. The rules and principles of section 382 (including, for example, section 382(b)(3) and section 382(l)(2)) and the regulations thereunder shall also apply with respect to section 383 and this section. To the extent section 382(h)(6) applies to credits, the principles of this section apply to such credits. In applying the rules and principles of section 382 and the regulations thereunder, appropriate adjustments shall be made to take into account that section 383 and this section apply to pre-change capital losses and pre-change credits. For example, in applying § 1.382-2T (f)(18)(ii)(C), (f)(18)(iii)(C) and (h)(4)(ix), any pre-change credits, as defined in paragraph (c)(3) of this section, must be converted to a deduction equivalent by dividing the amount of such credits by the maximum effective rate of tax provided for under section 11.
(h) Alternative minimum tax. See § 1.383-2T for the application of the limitations contained in sections 382 and 383 in computing the alternative minimum tax under section 55.
(i) [Reserved]
(j) Applicability date—
(1) In general. Subject to any exception from the application of section 382 or the section 382 limitation with respect to a loss corporation, section 383 and this section apply to any loss corporation with respect to which an ownership change occurs after December 31, 1986. See § 1.382-2T(m) for effective date rules relating to ownership changes. If section 383 was not taken into account or was applied other than in accordance with this section in a prior taxable year with respect to which section 383 applies, the taxpayer should, within the period of limitation, file an amended return and pay any additional tax due plus interest.
(2) Interaction with section 163(j). Paragraphs (c)(6)(i)(B) and (c)(6)(ii), (d)(1), (d)(2)(iii) through (viii), (d)(3)(ii), (e)(1) through (3), (f), and (g) of this section apply with respect to ownership changes occurring during a taxable year beginning on or after November 13, 2020. For loss corporations that have undergone an ownership change during a taxable year beginning before November 13, 2020, see § 1.383-1 as contained in 26 CFR part 1, revised April 1, 2019. However, taxpayers and their related parties, within the meaning of sections 267(b) and 707(b)(1), may choose to apply the rules of this section to an ownership change occurring during a taxable year beginning after December 31, 2017, so long as the taxpayers and their related parties consistently apply either the rules of this section (except paragraph (d)(2)(iv)(B) of this section), the section 163(j) regulations (as defined in § 1.163(j)-1(b)(37)), §§ 1.382-1, 1.382-2, 1.382-5, 1.382-6, 1.382-7, and 1.383-0, and, if applicable, §§ 1.263A-9, 1.263A-15, 1.381(c)(20)-1, 1.469-9, 1.469-11, 1.704-1, 1.882-5, 1.1362-3, 1.1368-1, 1.1377-1, 1.1502-13, 1.1502-21, 1.1502-36, 1.1502-79, 1.1502-91 through 1.1502-99 (to the extent they effectuate the rules of §§ 1.382-2, § 1.382-5, 1.382-6, and 1.383-1), and 1.1504-4; or the rules of this section (except paragraph (d)(2)(iv)(A) of this section), the section 163(j) regulations (as defined in § 1.163(j)-1(b)(37)) and §§ 1.382-1, 1.382-2, 1.382-5, 1.382-6, and 1.383-0, and, if applicable, §§ 1.263A-9, 1.263A-15, 1.381(c)(20)-1, 1.469-9, 1.469-11, 1.704-1, 1.882-5, 1.1362-3, 1.1368-1, 1.1377-1, 1.1502-13, 1.1502-21, 1.1502-36, 1.1502-79, 1.1502-91 through 1.1502-99 (to the extent they effectuate the rules of §§ 1.382-2, 1.382-5, 1.382-6, 1.382-7, and 1.383-1), and 1.1504-4, to those ownership changes.

[T.D. 8264, 54 FR 38668, Sept. 20, 1989; T.D. 8264, 54 FR 46187, Nov. 1, 1989; T.D. 8264, 54 FR 50043, Dec. 4, 1989. Redesignated and amended by T.D. 8352, 56 FR 29434, June 27, 1991; T.D. 9885, 84 FR 67038, Dec. 6, 2019; T.D. 9905, 85 FR 56837, Sept. 14, 2020]

Terms defined here

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Other regulations under § 383

Cross-references

Computed from the citations in the text of 26 CFR.

Code sections it cites

Regulations it cites

Cited by 5 other regulations

Amendment history

From the source citation at the end of the section, newest first. T.D. is a Treasury decision; FR is the Federal Register.

  1. Amended by T.D. 9905 (85 FR 56837)
  2. Amended by T.D. 9885 (84 FR 67038)
  3. Amended by T.D. 8352 (56 FR 29434)
  4. Amended by T.D. 8264 (54 FR 50043)
  5. Amended by T.D. 8264 (54 FR 46187)
  6. Issued by T.D. 8264 (54 FR 38668)

Where it sits in 26 CFR

  1. Subchapter A Income tax
  2. Part 1 Income taxes
  3. Carryovers

Nearby sections