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26 U.S.C. § 1255 — Gain from disposition of section 126 property
Federal law — U.S. Code and appendices · legal_authorities
**(a) General rule**
(1) **Ordinary income** — Except as otherwise provided in this section, if section 126 property is disposed of, the lower of—
(A) the applicable percentage of the aggregate payments, with respect to such property, excluded from gross income under section 126, or
(B) the excess of—
(i) the amount realized (in the case of a sale, exchange, or involuntary conversion), or the fair market value of such section 126 property (in the case of any other disposition), over
(ii) the adjusted basis of such property,
shall be treated as ordinary income. Such gain shall be recognized notwithstanding any other provision of this subtitle, except that this section shall not apply to the extent such gain is recognized as ordinary income under any other provision of this part.
(2) **Section 126 property** — For purposes of this section, “section 126 property” means any property acquired, improved, or otherwise modified by the application of payments excluded from gross income under section 126.
(3) **Applicable percentage** — For purposes of this section, if section 126 property is disposed of less than 10 years after the date of receipt of payments excluded from gross income under section 126, the applicable percentage is 100 percent. If section 126 property is disposed of more than 10 years after such date, the applicable percentage is 100 percent reduced (but not below zero) by 10 percent for each year or part thereof in excess of 10 years such property was held after the date of receipt of the payments.
**(b) Special rules** Under regulations prescribed by the Secretary—
(1) rules similar to the rules applicable under section 1245 shall be applied for purposes of this section, and
(2) for purposes of sections 170(e) and 751(c), amounts tre
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Source location: Title 26, Chapter 1, § 1255; chapter-001-normal-taxes-and-surtaxes.md
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**(a) General rule**
(1) **Ordinary income** — Except as otherwise provided in this section, if section 126 property is disposed of, the lower of—
(A) the applicable percentage of the aggregate payments, with respect to such property, excluded from gross income under section 126, or
(B) the excess of—
(i) the amount realized (in the case of a sale, exchange, or involuntary conversion), or the fair market value of such section 126 property (in the case of any other disposition), over
(ii) the adjusted basis of such property,
shall be treated as ordinary income. Such gain shall be recognized notwithstanding any other provision of this subtitle, except that this section shall not apply to the extent such gain is recognized as ordinary income under any other provision of this part.
(2) **Section 126 property** — For purposes of this section, “section 126 property” means any property acquired, improved, or otherwise modified by the application of payments excluded from gross income under section 126.
(3) **Applicable percentage** — For purposes of this section, if section 126 property is disposed of less than 10 years after the date of receipt of payments excluded from gross income under section 126, the applicable percentage is 100 percent. If section 126 property is disposed of more than 10 years after such date, the applicable percentage is 100 percent reduced (but not below zero) by 10 percent for each year or part thereof in excess of 10 years such property was held after the date of receipt of the payments.
**(b) Special rules** Under regulations prescribed by the Secretary—
(1) rules similar to the rules applicable under section 1245 shall be applied for purposes of this section, and
(2) for purposes of sections 170(e) and 751(c), amounts treated as ordinary income under this section shall be treated in the same manner as amounts treated as ordinary income under section 1245.
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Federal law — U.S. Code and appendices · legal_authorities
**(a) General rule** Gross income does not include the excludable portion of payments received under—
(1) The rural clean water program authorized by section 208(j) of the Federal Water Pollution Control Act ([33 U.S.C. 1288(j)](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title33-section1288/j&num=0&edition=prelim)).
(2) The rural abandoned mine program authorized by section 406 of the Surface Mining Control and Reclamation Act of 1977 ([30 U.S.C. 1236](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title30-section1236&num=0&edition=prelim)).
(3) The water bank program authorized by the Water Bank Act ([16 U.S.C. 1301](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title16-section1301&num=0&edition=prelim) et seq.).
(4) The emergency conservation measures program authorized by title IV of the Agricultural Credit Act of 1978.
(5) The agricultural conservation program authorized by the Soil Conservation and Domestic Allotment Act ([16 U.S.C. 590a](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title16-section590a&num=0&edition=prelim)).
(6) The resource conservation and development program authorized by the Bankhead-Jones Farm Tenant Act and by the Soil Conservation and Domestic Allotment Act ([7 U.S.C. 1010](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title7-section1010&num=0&edition=prelim); [16 U.S.C. 590a](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title16-section590a&num=0&edition=prelim) et seq.).
(7) Any small watershed program administered by the Secretary of Agriculture which is determined by the Secretary of the Treasury or his delegate to be substantially similar to the type of programs described in paragraphs (1) through (8).
(8) Any program of a State, posses
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Federal law — U.S. Code and appendices · legal_authorities
**(a) General rule** There shall be allowed as a deduction all interest paid or accrued within the taxable year on indebtedness.
**(b) Installment purchases where interest charge is not separately stated**
(1) **General rule** — If personal property or educational services are purchased under a contract—
(A) which provides that payment of part or all of the purchase price is to be made in installments, and
(B) in which carrying charges are separately stated but the interest charge cannot be ascertained,
then the payments made during the taxable year under the contract shall be treated for purposes of this section as if they included interest equal to 6 percent of the average unpaid balance under the contract during the taxable year. For purposes of the preceding sentence, the average unpaid balance is the sum of the unpaid balance outstanding on the first day of each month beginning during the taxable year, divided by 12. For purposes of this paragraph, the term “educational services” means any service (including lodging) which is purchased from an educational organization described in section 170(b)(1)(A)(ii) and which is provided for a student of such organization.
(2) **Limitation** — In the case of any contract to which paragraph (1) applies, the amount treated as interest for any taxable year shall not exceed the aggregate carrying charges which are properly attributable to such taxable year.
**(c) Redeemable ground rents** For purposes of this subtitle, any annual or periodic rental under a redeemable ground rent (excluding amounts in redemption thereof) shall be treated as interest on an indebtedness secured by a mortgage.
**(d) Limitation on investment interest**
(1) **In general** — In the case of a taxpayer other than a corporation, the amount al
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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
**(a) Allowance of credit**
(1) **In general** — In the case of an eligible individual, there shall be allowed as a credit against the tax imposed by this subtitle for the taxable year an amount equal to the credit percentage of so much of the taxpayer’s earned income for the taxable year as does not exceed the earned income amount.
(2) **Limitation** — The amount of the credit allowable to a taxpayer under paragraph (1) for any taxable year shall not exceed the excess (if any) of—
(A) the credit percentage of the earned income amount, over
(B) the phaseout percentage of so much of the adjusted gross income (or, if greater, the earned income) of the taxpayer for the taxable year as exceeds the phaseout amount.
**(b) Percentages and amounts** For purposes of subsection (a)—
(1) **Percentages** — The credit percentage and the phaseout percentage shall be determined as follows: In the case of an eligible individual with:The credit percentage is:Thephaseoutpercentageis: 1 qualifying child3415.98 2 qualifying children4021.06 3 or more qualifying children4521.06 No qualifying children7.65 7.65
(2) **Amounts**
(A) *In general* — Subject to subparagraph (B), the earned income amount and the phaseout amount shall be determined as follows: In the case of an eligible individual with:The earned income amount is:Thephaseoutamount is: 1 qualifying child$6,330$11,610 2 or more qualifying children$8,890$11,610 No qualifying children$4,220 $5,280
(B) *Joint returns* — In the case of a joint return filed by an eligible individual and such individual’s spouse, the phaseout amount determined under subparagraph (A) shall be increased by $5,000.
**(c) Definitions and special rules** For purposes of this section—
(1) **Eligible individual**
(A) *In general* — The term “e
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Federal law — U.S. Code and appendices · legal_authorities
**(a) General rule** For purposes of this subtitle, if a purchasing corporation makes an election under this section (or is treated under subsection (e) as having made such an election), then, in the case of any qualified stock purchase, the target corporation—
(1) shall be treated as having sold all of its assets at the close of the acquisition date at fair market value in a single transaction, and
(2) shall be treated as a new corporation which purchased all of the assets referred to in paragraph (1) as of the beginning of the day after the acquisition date.
**(b) Basis of assets after deemed purchase**
(1) **In general** — For purposes of subsection (a), the assets of the target corporation shall be treated as purchased for an amount equal to the sum of—
(A) the grossed-up basis of the purchasing corporation’s recently purchased stock, and
(B) the basis of the purchasing corporation’s nonrecently purchased stock.
(2) **Adjustment for liabilities and other relevant items** — The amount described in paragraph (1) shall be adjusted under regulations prescribed by the Secretary for liabilities of the target corporation and other relevant items.
(3) **Election to step-up the basis of certain target stock**
(A) *In general* — Under regulations prescribed by the Secretary, the basis of the purchasing corporation’s nonrecently purchased stock shall be the basis amount determined under subparagraph (B) of this paragraph if the purchasing corporation makes an election to recognize gain as if such stock were sold on the acquisition date for an amount equal to the basis amount determined under subparagraph (B).
(B) *Determination of basis amount* — For purposes of subparagraph (A), the basis amount determined under this subparagraph shall be an amount equal to
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Federal law — U.S. Code and appendices · legal_authorities
**(a) General rule** Except as otherwise provided in this section or section 337, gain or loss shall be recognized to a liquidating corporation on the distribution of property in complete liquidation as if such property were sold to the distributee at its fair market value.
**(b) Treatment of liabilities** If any property distributed in the liquidation is subject to a liability or the shareholder assumes a liability of the liquidating corporation in connection with the distribution, for purposes of subsection (a) and section 337, the fair market value of such property shall be treated as not less than the amount of such liability.
**(c) Exception for liquidations which are part of a reorganization** For provision providing that this subpart does not apply to distributions in pursuance of a plan of reorganization, see section 361(c)(4).
**(d) Limitations on recognition of loss**
(1) **No loss recognized in certain distributions to related persons**
(A) *In general* — No loss shall be recognized to a liquidating corporation on the distribution of any property to a related person (within the meaning of section 267) if—
(i) such distribution is not pro rata, or
(ii) such property is disqualified property.
(B) *Disqualified property* — For purposes of subparagraph (A), the term “disqualified property” means any property which is acquired by the liquidating corporation in a transaction to which section 351 applied, or as a contribution to capital, during the 5-year period ending on the date of the distribution. Such term includes any property if the adjusted basis of such property is determined (in whole or in part) by reference to the adjusted basis of property described in the preceding sentence.
(2) **Special rule for certain property acquired in cert
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Federal law — U.S. Code and appendices · legal_authorities
**(a) General rule** Except as otherwise provided in this section, income from an installment sale shall be taken into account for purposes of this title under the installment method.
**(b) Installment sale defined** For purposes of this section—
(1) **In general** — The term “installment sale” means a disposition of property where at least 1 payment is to be received after the close of the taxable year in which the disposition occurs.
(2) **Exceptions** — The term “installment sale” does not include—
(A) *Dealer dispositions* — Any dealer disposition (as defined in subsection (l)).
(B) *Inventories of personal property* — A disposition of personal property of a kind which is required to be included in the inventory of the taxpayer if on hand at the close of the taxable year.
**(c) Installment method defined** For purposes of this section, the term “installment method” means a method under which the income recognized for any taxable year from a disposition is that proportion of the payments received in that year which the gross profit (realized or to be realized when payment is completed) bears to the total contract price.
**(d) Election out**
(1) **In general** — Subsection (a) shall not apply to any disposition if the taxpayer elects to have subsection (a) not apply to such disposition.
(2) **Time and manner for making election** — Except as otherwise provided by regulations, an election under paragraph (1) with respect to a disposition may be made only on or before the due date prescribed by law (including extensions) for filing the taxpayer’s return of the tax imposed by this chapter for the taxable year in which the disposition occurs. Such an election shall be made in the manner prescribed by regulations.
(3) **Election revocable only with consent**
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Federal law — U.S. Code and appendices · legal_authorities
Page 2368
TITLE 26—INTERNAL REVENUE CODE
§ 1255
1986—Pub. L. 99–514 amended section generally, sub-
stituting ‘‘geothermal, or other mineral properties’’ for
‘‘or geothermal property’’ in section catchline, revising
and restating subsec. (a), pars. (1) to (4) as pars. (1) to
(3), and reenacting subsec. (b) without change except
for substituting ‘‘rule of subsection (g)’’ for ‘‘rules of
subsection (g)’’ in par. (1).
1982—Subsec. (b)(2). Pub. L. 97–354 substituted ‘‘an S
corporation’’ for ‘‘an electing small business corpora-
tion (as defined in section 1371(b))’’.
1978—Pub. L. 95–618, § 402(c)(3), substituted ‘‘oil, gas,
or geothermal’’ for ‘‘oil or gas’’ in section catchline.
Subsec. (a)(1), (2). Pub. L. 95–618, § 402(c)(1), sub-
stituted ‘‘oil, gas, or geothermal property’’ for ‘‘oil or
gas property’’ wherever appearing.
Subsec. (a)(3). Pub. L. 95–618, § 402(c)(2), substituted
‘‘Oil, gas, or geothermal’’ for ‘‘Oil or gas’’ in heading
and in text substituted ‘‘The term ‘oil, gas, or geo-
thermal property’ means’’ for ‘‘The term ‘oil or gas
property’ means’’.
Statutory Notes and Related Subsidiaries
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100–647 effective, except as
otherwise provided, as if included in the provision of
the Tax Reform Act of 1986, Pub. L. 99–514, to which
such amendment relates, see section 1019(a) of Pub. L.
100–647, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Pub. L. 99–514, title IV, § 413(c), Oct. 22, 1986, 100 Stat.
2229, provided that:
‘‘(1) IN GENERAL.—The amendments made by this sec-
tion [amending this section and section 617 of this title]
shall apply to any disposition of property which is
placed in service by the taxpayer after December 31,
1986.
‘‘(2) EXCEPTION
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