[waitspring]

Hello everyone, I have a question about treatment of section 1231 :

1. the net gain of section 1231 is treated as long term capital gain.

2. the lookback rule requires section 1231 gain offset by net loss for the 5 previous years that have not be recaptured. The net gain is treated as ordinary income.

I am confusion with these two treatment: long-term capital gain and the Ordinary income after lookback. Can anyone explain it to me?

Thank you very much for your time!!

[NYCaccountant]

Net section 1231 gain is treated as long term capital gain unless the business has unrecaptured section 1231 losses from prior 5 years. So lets say you begin the year with a total unrecaptured section 1231 loss of 15,000. In the current year, you have a net section 1231 gain of 20,000. Well 15,000 of the 20,000 will be offset by the loss from prior years and that has to be treated as ordinary income. The balance of 5,000 is a 1231 long term capital gain.

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[waitspring]

Thank you very much!!

[Author]

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