Treasury Regulations · 26 CFR
§ 1.904(f)-7. Separate limitation loss and the separate limitation loss account.
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. § 904(f)
Cite as 26 CFR § 1.904(f)-7
At a glance
Read from the text and its source citation. Not part of the regulation.
- Status
- In the current eCFR
- Issued
- June 22, 2012 by T.D. 9595
- Issued under
- 26 U.S.C. § 904(f)
- Length
- 919 words · about 4 min to read
- Cross-references
- cites 5 Code sections and 5 regulations; cited by 4
¶(a) Overview of regulations. This section provides rules for determining a taxpayer's separate limitation losses, for establishing separate limitation loss accounts, and for making additions to and reducing such accounts for purposes of section 904(f). Section 1.904(f)-8 provides rules for recharacterizing the balance in any separate limitation loss account under the general recharacterization rule of section 904(f)(5)(C).
¶(b) Definitions. The definitions in paragraphs (b)(1) through (b)(4) of this section apply for purposes of this section and §§ 1.904(f)-8 and 1.904(g)-3.
¶(1) Separate category means each separate category of income described in section 904(d) and any other category of income described in § 1.904-4(m). For example, income subject to section 901(j) or section 904(h)(10) is income in a separate category.
¶(2) Separate limitation income means, with respect to any separate category, the taxable income from sources outside the United States, separately computed for that category for the taxable year. Separate limitation income shall be determined by taking into account any adjustments for capital gains and losses and qualified dividend income, as defined in section 1(h)(11), under section 904(b)(2) and § 1.904(b)-1. See § 1.904(b)-1(h)(1)(i).
¶(3) Separate limitation loss means, with respect to any separate category, the amount by which the foreign source gross income in that category is exceeded by the sum of expenses, losses and other deductions (not including any net operating loss deduction under section 172(a) or any expropriation loss or casualty loss described in section 907(c)(4)(D)(iii)) properly apportioned or allocated to that separate category for the taxable year. Separate limitation losses shall be determined by taking into account any adjustments for capital gains and losses and qualified dividend income under section 904(b)(2) and § 1.904(b)-1. See § 1.904(b)-1(h)(1)(i).
¶(c) Separate limitation loss account. Any taxpayer that sustains a separate limitation loss that is allocated to reduce separate limitation income in one or more other separate categories of the taxpayer under the rules of § 1.904(g)-3 must establish a separate limitation loss account for the loss with respect to each such other separate category. The balance in any separate limitation loss account represents the amount of such separate limitation loss that is subject to recapture in a given taxable year pursuant to § 1.904(f)-8 and section 904(f)(5)(F). From year to year, amounts may be added to or subtracted from the balance in such loss accounts, as provided in paragraphs (d) and (e) of this section.
¶(d) Additions to separate limitation loss accounts—
¶(1) General rule. A taxpayer's separate limitation loss as defined in paragraph (b)(3) of this section shall be added to the applicable separate limitation loss accounts at the end of its taxable year to the extent that the separate limitation loss reduces separate limitation income in one or more other separate categories in that taxable year or in a year to which the loss has been carried back. For rules with respect to net operating loss carryovers, see paragraph (d)(3) of this section and § 1.904(g)-3.
¶(2) Separate limitation losses of another taxpayer. If any portion of any separate limitation loss account of another taxpayer is allocated to the taxpayer in accordance with § 1.1502-9 (relating to consolidated separate limitation losses) the taxpayer shall add such amount to its applicable separate limitation loss account.
¶(3) Additions to separate limitation loss account created by loss carryovers. The taxpayer shall add to each separate limitation loss account all net operating loss carryovers to the current taxable year to the extent that separate limitation losses included in the net operating loss carryovers reduced foreign source income in one or more other separate categories for the taxable year.
¶(e) Reductions of separate limitation loss accounts. The taxpayer shall subtract the following amounts from its separate limitation loss accounts at the end of its taxable year in the following order as applicable:
¶(1) Pre-recapture reduction for amounts allocated to other taxpayers. A separate limitation loss account is reduced by the amount of any separate limitation loss account that is allocated to another taxpayer in accordance with § 1.1502-9 (relating to consolidated separate limitation losses).
¶(2) Reduction for offsetting loss accounts. A separate limitation loss account is reduced to take into account any netting of separate limitation loss accounts under § 1.904(g)-3(d)(1).
¶(3) Reduction for amounts recaptured. A separate limitation loss account is reduced by the amount of any separate limitation income that is earned in the same separate category as the separate limitation loss and that is recharacterized in accordance with § 1.904(f)-8 (relating to recapture of separate limitation losses) or section 904(f)(5)(F) (relating to recapture of separate limitation loss accounts out of gain realized from certain dispositions).
¶(f) Effective/applicability date. This section applies to taxpayers that sustain separate limitation losses in taxable years beginning on or after January 1, 2012. Taxpayers may choose to apply this section to separate limitation losses sustained in other taxable years beginning after December 21, 2007, including periods covered by 26 CFR 1.904(f)-7T (revised as of April 1, 2010). For rules relating to taxable years beginning after December 31, 1986, and on or before December 21, 2007, see section 904(f)(5).
[T.D. 9595, 77 FR 37579, June 22, 2012]
Cross-references
Computed from the citations in the text of 26 CFR.
Code sections it cites
- § 904 Limitation on credit
- § 901 Taxes of foreign countries and of possessions of United States
- § 1 Tax imposed
- § 172 Net operating loss deduction
- § 907 Special rules in case of foreign oil and gas income
Regulations it cites
- § 1.904(f)-8 Recapture of separate limitation loss accounts.
- § 1.904-4 Separate application of section 904 with respect to certain categories of income.
- § 1.904(b)-1 Special rules for capital gains and losses.
- § 1.904(g)-3 Ordering rules for the allocation of net operating losses, net capital losses, U.S. source losses, and separate limitation losses, and for the recapture of separate limitation losses, overall foreign losses, and overall domestic losses.
- § 1.1502-9 Consolidated overall foreign losses, separate limitation losses, and overall domestic losses.
Cited by 4 other regulations
- § 1.904(f)-0 Outline of regulation provisions.
- § 1.904(f)-8 Recapture of separate limitation loss accounts.
- § 1.904(g)-1 Overall domestic loss and the overall domestic loss account.
- § 1.904(g)-3 Ordering rules for the allocation of net operating losses, net capital losses, U.S. source losses, and separate limitation losses, and for the recapture of separate limitation losses, overall foreign losses, and overall domestic losses.
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.
- Issued by T.D. 9595 (77 FR 37579)
Where it sits in 26 CFR
- Subchapter A Income tax
- Part 1 Income taxes
- Foreign tax credit
Nearby sections
- § 1.904(f)-3 Allocation of net operating losses and net capital losses.
- § 1.904(f)-4 Recapture of foreign losses out of accumulation distributions from a foreign trust.
- § 1.904(f)-5 Special rules for recapture of overall foreign losses of a domestic trust.
- § 1.904(f)-6 Transitional rule for recapture of FORI and general limitation overall foreign losses incurred in taxable years beginning before January 1, 1983, from foreign source taxable income subject to the general limitation in taxable years beginning after December 31, 1982.
- § 1.904(f)-7 Separate limitation loss and the separate limitation loss account.
- § 1.904(f)-8 Recapture of separate limitation loss accounts.
- § 1.904(f)-12 Transition rules.
- § 1.904(g)-0 Outline of regulation provisions.
- § 1.904(g)-1 Overall domestic loss and the overall domestic loss account.