Treatment of separate limitation losses
(A) In general
(A)In general#
The amount of the separate limitation losses for any taxable year shall reduce income from sources within the United States for such taxable year only to the extent the aggregate amount of such losses exceeds the aggregate amount of the separate limitation incomes for such taxable year.
(B)Allocation of losses#
The separate limitation losses for any taxable year (to the extent such losses do not exceed the separate limitation incomes for such year) shall be allocated among (and operate to reduce) such incomes on a proportionate basis.
(C)Recharacterization of subsequent income#
If—
(i) a separate limitation loss from any income category (hereinafter in this subparagraph referred to as “the loss category”) was allocated to income from any other category under subparagraph (B), and
(ii) the loss category has income for a subsequent taxable year,
such income (to the extent it does not exceed the aggregate separate limitation losses from the loss category not previously recharacterized under this subparagraph) shall be recharacterized as income from such other category in proportion to the prior reductions under subparagraph (B) in such other category not previously taken into account under this subparagraph. Nothing in the preceding sentence shall be construed as recharacterizing any tax.
(C)(i)#
a separate limitation loss from any income category (hereinafter in this subparagraph referred to as “the loss category”) was allocated to income from any other category under subparagraph (B), and
(C)(ii)#
the loss category has income for a subsequent taxable year,
(D)Special rules for losses from sources in the United States#
Any loss from sources in the United States for any taxable year (to the extent such loss does not exceed the separate limitation incomes from such year) shall be allocated among (and operate to reduce) such incomes on a proportionate basis. This subparagraph shall be applied after subparagraph (B).
(E)Definitions#
For purposes of this paragraph—
(i) Income category The term “income category” means each separate category of income described in subsection (d)(1).
(ii) Separate limitation income The term “separate limitation income” means, with respect to any income category, the taxable income from sources outside the United States, separately computed for such category.
(iii) Separate limitation loss The term “separate limitation loss” means, with respect to any income category, the loss from such category determined under the principles of section 907(c)(4)(B).
(E)(i)Income category#
The term “income category” means each separate category of income described in subsection (d)(1).
(E)(ii)Separate limitation income#
The term “separate limitation income” means, with respect to any income category, the taxable income from sources outside the United States, separately computed for such category.
(E)(iii)Separate limitation loss#
(F)Dispositions#
If any separate limitation loss for any taxable year is allocated against any separate limitation income for such taxable year, except to the extent provided in regulations, rules similar to the rules of paragraph (3) shall apply to any disposition of property if gain from such disposition would be in the income category with respect to which there was such separate limitation loss.