1. (1) The term investment income means income from investment capital to the extent included in computing entire net income, less any deductions allowable in computing entire net income which are directly or indirectly attributable to investment capital or investment income and less such portion of any net operating loss deduction allowable in computing entire net income as described in section 3-8.8 of this Title. Income from investment capital includes dividends from investment capital, interest from investment capital and capital gains in excess of capital losses from the sale or exchange of investment capital.
2. (2) Investment income also includes gain (or loss) from closing out a position in a futures or forward contract if such contract substantially diminishes the taxpayer's risk of loss from holding one or more positions in assets which constitute investment capital. If the taxpayer has entered into more positions in futures or forward contracts than are reasonably necessary to substantially diminish its risk of loss from holding such positions in assets constituting investment capital, the gain (or loss) attributable to any such excess positions in futures or forward contracts is not investment income.
3. (3) Investment income also includes gain (or loss) from short sales of assets which constitute investment capital.
4. (4) Investment income also includes gain (or loss) from closing out a position in a futures or forward contract if such contract substantially diminishes the taxpayer's risk of loss from making short sales of assets which constitute investment capital. If the taxpayer has entered into more positions in futures or forward contracts than is reasonably necessary to substantially diminish its risk of loss from such short sales, the gain (or loss) attributable to any such excess positions in futures or forward contracts is not investment income.
5. (5) Investment income also includes premium income from an unexercised covered call option if the item which covers the call is an asset constituting investment capital. However, premium income from unexercised naked call options and premium income from unexercised put options is not investment income.
6. (b) In no case may investment income be greater than entire net income. If a taxpayer has no business income, its investment income is its entire net income. For the definition of investment capital, see section 3-3.2 of this Title.
7. (c) Since dividends are included in the definition of investment income to the same extent as in computing entire net income, only one-half of dividends from non-subsidiary corporations may be included in investment income. Capital gains and losses must be included in the computation of entire net income in the same manner and to the same extent as for Federal income tax purposes. Accordingly, capital gains and losses from sales and exchanges of assets constituting investment capital are included in investment income in the same manner and to the same extent as for Federal income tax purposes.

Tax Law, § 208(6)

(a)