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26 U.S.C. § 1231 — Property used in the trade or business and involuntary conversions
Federal law — U.S. Code and appendices · legal_authorities
**(a) General rule**
(1) **Gains exceed losses** — If—
(A) the section 1231 gains for any taxable year, exceed
(B) the section 1231 losses for such taxable year,
such gains and losses shall be treated as long-term capital gains or long-term capital losses, as the case may be.
(2) **Gains do not exceed losses** — If—
(A) the section 1231 gains for any taxable year, do not exceed
(B) the section 1231 losses for such taxable year,
such gains and losses shall not be treated as gains and losses from sales or exchanges of capital assets.
(3) **Section 1231 gains and losses** — For purposes of this subsection—
(A) *Section 1231 gain* — The term “section 1231 gain” means—
(i) any recognized gain on the sale or exchange of property used in the trade or business, and
(ii) any recognized gain from the compulsory or involuntary conversion (as a result of destruction in whole or in part, theft or seizure, or an exercise of the power of requisition or condemnation or the threat or imminence thereof) into other property or money of—
(I) property used in the trade or business, or
(II) any capital asset which is held for more than 1 year and is held in connection with a trade or business or a transaction entered into for profit.
(B) *Section 1231 loss* — The term “section 1231 loss” means any recognized loss from a sale or exchange or conversion described in subparagraph (A).
(4) **Special rules** — For purposes of this subsection—
(A) In determining under this subsection whether gains exceed losses—
(i) the section 1231 gains shall be included only if and to the extent taken into account in computing gross income, and
(ii) the section 1231 losses shall be included only if and to the extent taken into account in computing ta
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Source file: Laws/federal/codes/united-states-code/title-26/section-1231-property-used-in-the-trade-or-business-and-involuntary-conversions--00304bea64.md
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Source location: Title 26, Chapter 1, § 1231; chapter-001-normal-taxes-and-surtaxes.md
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**(a) General rule**
(1) **Gains exceed losses** — If—
(A) the section 1231 gains for any taxable year, exceed
(B) the section 1231 losses for such taxable year,
such gains and losses shall be treated as long-term capital gains or long-term capital losses, as the case may be.
(2) **Gains do not exceed losses** — If—
(A) the section 1231 gains for any taxable year, do not exceed
(B) the section 1231 losses for such taxable year,
such gains and losses shall not be treated as gains and losses from sales or exchanges of capital assets.
(3) **Section 1231 gains and losses** — For purposes of this subsection—
(A) *Section 1231 gain* — The term “section 1231 gain” means—
(i) any recognized gain on the sale or exchange of property used in the trade or business, and
(ii) any recognized gain from the compulsory or involuntary conversion (as a result of destruction in whole or in part, theft or seizure, or an exercise of the power of requisition or condemnation or the threat or imminence thereof) into other property or money of—
(I) property used in the trade or business, or
(II) any capital asset which is held for more than 1 year and is held in connection with a trade or business or a transaction entered into for profit.
(B) *Section 1231 loss* — The term “section 1231 loss” means any recognized loss from a sale or exchange or conversion described in subparagraph (A).
(4) **Special rules** — For purposes of this subsection—
(A) In determining under this subsection whether gains exceed losses—
(i) the section 1231 gains shall be included only if and to the extent taken into account in computing gross income, and
(ii) the section 1231 losses shall be included only if and to the extent taken into account in computing taxable income, except that section 1211 shall not apply.
(B) Losses (including losses not compensated for by insurance or otherwise) on the destruction, in whole or in part, theft or seizure, or requisition or condemnation of—
(i) property used in the trade or business, or
(ii) capital assets which are held for more than 1 year and are held in connection with a trade or business or a transaction entered into for profit,
shall be treated as losses from a compulsory or involuntary conversion.
(C) In the case of any involuntary conversion (subject to the provisions of this subsection but for this sentence) arising from fire, storm, shipwreck, or other casualty, or from theft, of any—
(i) property used in the trade or business, or
(ii) any capital asset which is held for more than 1 year and is held in connection with a trade or business or a transaction entered into for profit,
this subsection shall not apply to such conversion (whether resulting in gain or loss) if during the taxable year the recognized losses from such conversions exceed the recognized gains from such conversions.
**(b) Definition of property used in the trade or business** For purposes of this section—
(1) **General rule** — The term “property used in the trade or business” means property used in the trade or business, of a character which is subject to the allowance for depreciation provided in section 167, held for more than 1 year, and real property used in the trade or business, held for more than 1 year, which is not—
(A) property of a kind which would properly be includible in the inventory of the taxpayer if on hand at the close of the taxable year,
(B) property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business,
(C) a patent, invention, model or design (whether or not patented), a secret formula or process, a copyright, a literary, musical, or artistic composition, a letter or memorandum, or similar property, held by a taxpayer described in paragraph (3) of section 1221(a), or
(D) a publication of the United States Government (including the Congressional Record) which is received from the United States Government, or any agency thereof, other than by purchase at the price at which it is offered for sale to the public, and which is held by a taxpayer described in paragraph (5) of section 1221(a).
(2) **Timber, coal, or domestic iron ore** — Such term includes timber, coal, and iron ore with respect to which section 631 applies.
(3) **Livestock** — Such term includes—
(A) cattle and horses, regardless of age, held by the taxpayer for draft, breeding, dairy, or sporting purposes, and held by him for 24 months or more from the date of acquisition, and
(B) other livestock, regardless of age, held by the taxpayer for draft, breeding, dairy, or sporting purposes, and held by him for 12 months or more from the date of acquisition.
Such term does not include poultry.
(4) **Unharvested crop** — In the case of an unharvested crop on land used in the trade or business and held for more than 1 year, if the crop and the land are sold or exchanged (or compulsorily or involuntarily converted) at the same time and to the same person, the crop shall be considered as “property used in the trade or business.”
**(c) Recapture of net ordinary losses**
(1) **In general** — The net section 1231 gain for any taxable year shall be treated as ordinary income to the extent such gain does not exceed the non-recaptured net section 1231 losses.
(2) **Non-recaptured net section 1231 losses** — For purposes of this subsection, the term “non-recaptured net section 1231 losses” means the excess of—
(A) the aggregate amount of the net section 1231 losses for the 5 most recent preceding taxable years, over
(B) the portion of such losses taken into account under paragraph (1) for such preceding taxable years.
(3) **Net section 1231 gain** — For purposes of this subsection, the term “net section 1231 gain” means the excess of—
(A) the section 1231 gains, over
(B) the section 1231 losses.
(4) **Net section 1231 loss** — For purposes of this subsection, the term “net section 1231 loss” means the excess of—
(A) the section 1231 losses, over
(B) the section 1231 gains.
(5) **Special rules** — For purposes of determining the amount of the net section 1231 gain or loss for any taxable year, the rules of paragraph (4) of subsection (a) shall apply.
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Federal law — U.S. Code and appendices · legal_authorities
**(a) General rule** There shall be allowed as a deduction any loss sustained during the taxable year and not compensated for by insurance or otherwise.
**(b) Amount of deduction** For purposes of subsection (a), the basis for determining the amount of the deduction for any loss shall be the adjusted basis provided in section 1011 for determining the loss from the sale or other disposition of property.
**(c) Limitation on losses of individuals** In the case of an individual, the deduction under subsection (a) shall be limited to—
(1) losses incurred in a trade or business;
(2) losses incurred in any transaction entered into for profit, though not connected with a trade or business; and
(3) except as provided in subsection (h), losses of property not connected with a trade or business or a transaction entered into for profit, if such losses arise from fire, storm, shipwreck, or other casualty, or from theft.
**(d) Wagering losses**
(1) **In general** — For purposes of losses from wagering transactions, the amount allowed as a deduction for any taxable year—
(A) shall be equal to 90 percent of the amount of such losses during such taxable year, and
(B) shall be allowed only to the extent of the gains from such transactions during such taxable year.
(2) **Special rule** — For purposes of paragraph (1), the term “losses from wagering transactions” includes any deduction otherwise allowable under this chapter incurred in carrying on any wagering transaction.
**(e) Theft losses** For purposes of subsection (a), any loss arising from theft shall be treated as sustained during the taxable year in which the taxpayer discovers such loss.
**(f) Capital losses** Losses from sales or exchanges of capital assets shall be allowed only to the extent allowed in sections
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Married individuals filing joint returns and surviving spouses** There is hereby imposed on the taxable income of—
(1) every married individual (as defined in section 7703) who makes a single return jointly with his spouse under section 6013, and
(2) every surviving spouse (as defined in section 2(a)),
a tax determined in accordance with the following table: If taxable income is:The tax is: Not over $36,90015% of taxable income. Over $36,900 but not over $89,150$5,535, plus 28% of the excess over $36,900. Over $89,150 but not over $140,000$20,165, plus 31% of the excess over $89,150. Over $140,000 but not over $250,000$35,928.50, plus 36% of the excess over $140,000. Over $250,000$75,528.50, plus 39.6% of the excess over $250,000.
**(b) Heads of households** There is hereby imposed on the taxable income of every head of a household (as defined in section 2(b)) a tax determined in accordance with the following table: If taxable income is:The tax is: Not over $29,60015% of taxable income. Over $29,600 but not over $76,400$4,440, plus 28% of the excess over $29,600. Over $76,400 but not over $127,500$17,544, plus 31% of the excess over $76,400. Over $127,500 but not over $250,000$33,385, plus 36% of the excess over $127,500. Over $250,000$77,485, plus 39.6% of the excess over $250,000.
**(c) Unmarried individuals (other than surviving spouses and heads of households)** There is hereby imposed on the taxable income of every individual (other than a surviving spouse as defined in section 2(a) or the head of a household as defined in section 2(b)) who is not a married individual (as defined in section 7703) a tax determined in accordance with the following table: If taxable income is:The tax is: Not over $22,10015% of taxable income. Over $22,100 but not over $53,50
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Federal law — U.S. Code and appendices · legal_authorities
Where the disposal of coal or iron ore is covered by section 631, no deduction shall be allowed for expenditures attributable to the making and administering of the contract under which such disposition occurs and to the preservation of the economic interest retained under such contract, except that if in any taxable year such expenditures plus the adjusted depletion basis of the coal or iron ore disposed of in such taxable year exceed the amount realized under such contract, such excess, to the extent not availed of as a reduction of gain under section 1231, shall be a loss deductible under section 165(a). This section shall not apply to any taxable year during which there is no income under the contract.
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Recognition of loss in case of straddles, etc.**
(1) **Limitation on recognition of loss**
(A) *In general* — Any loss with respect to 1 or more positions shall be taken into account for any taxable year only to the extent that the amount of such loss exceeds the unrecognized gain (if any) with respect to 1 or more positions which were offsetting positions with respect to 1 or more positions from which the loss arose.
(B) *Carryover of loss* — Any loss which may not be taken into account under subparagraph (A) for any taxable year shall, subject to the limitations under subparagraph (A), be treated as sustained in the succeeding taxable year.
(2) **Special rule for identified straddles**
(A) *In general* — In the case of any straddle which is an identified straddle—
(i) paragraph (1) shall not apply with respect to positions comprising the identified straddle,
(ii) if there is any loss with respect to any position of the identified straddle, the basis of each of the offsetting positions in the identified straddle shall be increased by an amount which bears the same ratio to the loss as the unrecognized gain with respect to such offsetting position bears to the aggregate unrecognized gain with respect to all such offsetting positions,
(iii) if the application of clause (ii) does not result in an increase in the basis of any offsetting position in the identified straddle, the basis of each of the offsetting positions in the identified straddle shall be increased in a manner which—
(I) is reasonable, consistent with the purposes of this paragraph, and consistently applied by the taxpayer, and
(II) results in an aggregate increase in the basis of such offsetting positions which is equal to the loss described in clause (ii), and
Source: Supplied U.S. Code snapshot — release unconfirmed · 26 U.S.C. § 1092
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Allowance of deduction**
(1) **General rule** — There shall be allowed as a deduction any charitable contribution (as defined in subsection (c)) payment of which is made within the taxable year. A charitable contribution shall be allowable as a deduction only if verified under regulations prescribed by the Secretary.
(2) **Corporations on accrual basis** — In the case of a corporation reporting its taxable income on the accrual basis, if—
(A) the board of directors authorizes a charitable contribution during any taxable year, and
(B) payment of such contribution is made after the close of such taxable year and on or before the 15th day of the fourth month following the close of such taxable year,
then the taxpayer may elect to treat such contribution as paid during such taxable year. The election may be made only at the time of the filing of the return for such taxable year, and shall be signified in such manner as the Secretary shall by regulations prescribe.
(3) **Future interests in tangible personal property** — For purposes of this section, payment of a charitable contribution which consists of a future interest in tangible personal property shall be treated as made only when all intervening interests in, and rights to the actual possession or enjoyment of, the property have expired or are held by persons other than the taxpayer or those standing in a relationship to the taxpayer described in section 267(b) or 707(b). For purposes of the preceding sentence, a fixture which is intended to be severed from the real property shall be treated as tangible personal property.
**(b) Percentage limitations**
(1) **Individuals** — In the case of an individual, the deduction provided in subsection (a) shall be limited as provided in the succeeding subparagra
Source: Supplied U.S. Code snapshot — release unconfirmed · 26 U.S.C. § 170
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Federal law — U.S. Code and appendices · legal_authorities
**(a) General rule**
(1) **Wholly worthless debts** — There shall be allowed as a deduction any debt which becomes worthless within the taxable year.
(2) **Partially worthless debts** — When satisfied that a debt is recoverable only in part, the Secretary may allow such debt, in an amount not in excess of the part charged off within the taxable year, as a deduction.
**(b) Amount of deduction** For purposes of subsection (a), the basis for determining the amount of the deduction for any bad debt shall be the adjusted basis provided in section 1011 for determining the loss from the sale or other disposition of property.
**(c) Repealed. Pub. L. 99–514, title VIII, § 805(a), Oct. 22, 1986, 100 Stat. 2361]**
**(d) Nonbusiness debts**
(1) **General rule** — In the case of a taxpayer other than a corporation—
(A) subsection (a) shall not apply to any nonbusiness debt; and
(B) where any nonbusiness debt becomes worthless within the taxable year, the loss resulting therefrom shall be considered a loss from the sale or exchange, during the taxable year, of a capital asset held for not more than 1 year.
(2) **Nonbusiness debt defined** — For purposes of paragraph (1), the term “nonbusiness debt” means a debt other than—
(A) a debt created or acquired (as the case may be) in connection with a trade or business of the taxpayer; or
(B) a debt the loss from the worthlessness of which is incurred in the taxpayer’s trade or business.
**(e) Worthless securities** This section shall not apply to a debt which is evidenced by a security as defined in section 165(g)(2)(C).
**(f) Cross references**
(1) For disallowance of deduction for worthlessness of debts owed by political parties and similar organizations, see section 271.
(2) For special rule for banks with respect
Source: Supplied U.S. Code snapshot — release unconfirmed · 26 U.S.C. § 166
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Federal law — U.S. Code and appendices · legal_authorities
**(a) In general** For purposes of this subtitle, the term “capital asset” means property held by the taxpayer (whether or not connected with his trade or business), but does not include—
(1) stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business;
(2) property, used in his trade or business, of a character which is subject to the allowance for depreciation provided in section 167, or real property used in his trade or business;
(3) a patent, invention, model or design (whether or not patented), a secret formula or process, a copyright, a literary, musical, or artistic composition, a letter or memorandum, or similar property, held by—
(A) a taxpayer whose personal efforts created such property,
(B) in the case of a letter, memorandum, or similar property, a taxpayer for whom such property was prepared or produced, or
(C) a taxpayer in whose hands the basis of such property is determined, for purposes of determining gain from a sale or exchange, in whole or part by reference to the basis of such property in the hands of a taxpayer described in subparagraph (A) or (B);
(4) accounts or notes receivable acquired in the ordinary course of trade or business for services rendered or from the sale of property described in paragraph (1);
(5) a publication of the United States Government (including the Congressional Record) which is received from the United States Government or any agency thereof, other than by purchase at the price at which it is offered for sale to the public, and which is held by—
(A) a taxpayer who so received such publ
Source: Supplied U.S. Code snapshot — release unconfirmed · 26 U.S.C. § 1221
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Computation of gain or loss** The gain from the sale or other disposition of property shall be the excess of the amount realized therefrom over the adjusted basis provided in section 1011 for determining gain, and the loss shall be the excess of the adjusted basis provided in such section for determining loss over the amount realized.
**(b) Amount realized** The amount realized from the sale or other disposition of property shall be the sum of any money received plus the fair market value of the property (other than money) received. In determining the amount realized—
(1) there shall not be taken into account any amount received as reimbursement for real property taxes which are treated under section 164(d) as imposed on the purchaser, and
(2) there shall be taken into account amounts representing real property taxes which are treated under section 164(d) as imposed on the taxpayer if such taxes are to be paid by the purchaser.
**(c) Recognition of gain or loss** Except as otherwise provided in this subtitle, the entire amount of the gain or loss, determined under this section, on the sale or exchange of property shall be recognized.
**(d) Installment sales** Nothing in this section shall be construed to prevent (in the case of property sold under contract providing for payment in installments) the taxation of that portion of any installment payment representing gain or profit in the year in which such payment is received.
**(e) Certain term interests**
(1) **In general** — In determining gain or loss from the sale or other disposition of a term interest in property, that portion of the adjusted basis of such interest which is determined pursuant to section 1014, 1015, or 1041 (to the extent that such adjusted basis is a portion of the entire adjusted basis
Source: Supplied U.S. Code snapshot — release unconfirmed · 26 U.S.C. § 1001
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Federal law — U.S. Code and appendices · legal_authorities
**(a) General rule** Except as otherwise provided in this section—
(1) **Additional depreciation after December 31, 1975**
(A) *In general* — If section 1250 property is disposed of after December 31, 1975, then the applicable percentage of the lower of—
(i) that portion of the additional depreciation (as defined in subsection (b)(1) or (4)) attributable to periods after December 31, 1975, in respect of the property, or
(ii) the excess of the amount realized (in the case of a sale, exchange, or involuntary conversion), or the fair market value of such property (in the case of any other disposition), over the adjusted basis of such property,
shall be treated as gain which is ordinary income. Such gain shall be recognized notwithstanding any other provision of this subtitle.
(B) *Applicable percentage* — For purposes of subparagraph (A), the term “applicable percentage” means—
(i) in the case of section 1250 property with respect to which a mortgage is insured under section 221(d)(3) or 236 of the National Housing Act, or housing financed or assisted by direct loan or tax abatement under similar provisions of State or local laws and with respect to which the owner is subject to the restrictions described in section 1039(b)(1)(B) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990), 100 percent minus 1 percentage point for each full month the property was held after the date the property was held 100 full months;
(ii) in the case of dwelling units which, on the average, were held for occupancy by families or individuals eligible to receive subsidies under section 8 of the United States Housing Act of 1937, as amended, or under the provisions of State or local law authorizing similar levels of su
Source: Supplied U.S. Code snapshot — release unconfirmed · 26 U.S.C. § 1250
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Federal law — U.S. Code and appendices · legal_authorities
Page 2329
TITLE 26—INTERNAL REVENUE CODE
§ 1231
1 So in original. Does not conform to section catchline.
by Pub. L. 96–223, title IV, § 401(a), 94 Stat. 299, resulting
in the text of this section reading as it read prior to en-
actment of section 702(c)(5). See Effective Date of 1980
Amendment and Revival of Prior Law note set out
above.
SAVINGS PROVISION
Amendment by Pub. L. 115–141 not applicable to cer-
tain obligations issued, DC Zone assets acquired, or
principal residences acquired before Jan. 1, 2012, see
section 401(d)(4)(C) of Pub. L. 115–141, set out as a note
under former section 1400 of this title.
For provisions that nothing in amendment by Pub. L.
115–141 be construed to affect treatment of certain
transactions occurring, property acquired, or items of
income, loss, deduction, or credit taken into account
prior to Mar. 23, 2018, for purposes of determining li-
ability for tax for periods ending after Mar. 23, 2018, see
section 401(e) of Pub. L. 115–141, set out as a note under
section 23 of this title.
PART
IV—SPECIAL
RULES
FOR
DETER-
MINING CAPITAL GAINS AND LOSSES
Sec.
1231.
Property used in the trade or business and in-
voluntary conversions.
[1232 to 1232B. Repealed.]
1233.
Gains and losses from short sales.
1234.
Options to buy or sell.
1234A.
Gains or losses from certain terminations.
1234B.
Gains or losses from securities futures con-
tracts.
1235.
Sale or exchange of patents.
1236.
Dealers in securities.
1237.
Real property subdivided for sale.
[1238.
Repealed.]
1239.
Gain from sale of certain property between
spouses or between an individual and a con-
trolled corporation.1
[1240.
Repealed.]
1241.
Cancellation of lease or distributor’s agree-
ment.
1242.
Losses on small business investment com-
pany s
Source: Supplied 2024 U.S. Code historical extraction · 26 U.S.C. § 1231
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