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— the section 1231 gains for any taxable year, do not exceed 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—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.
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—the section 1231 gains shall be included only if and to the extent taken into account in computing gross income, and
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—
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—
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 “ (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,
property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business,
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
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 oreSuch term includes timber, coal, and iron ore with respect to which section 631 applies.
(3) Livestock Such term includes—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
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 cropIn 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 “ (c) Recapture of net ordinary losses
(1) In generalThe 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—
the aggregate amount of the net section 1231 losses for the 5 most recent preceding taxable years, over
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—
the section 1231 gains, over the section 1231 losses.(4) Net section 1231 loss For purposes of this subsection, the term “net section 1231 loss” means the excess of—
the section 1231 losses, over the section 1231 gains. (5) Special rulesFor 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.
Editorial Notes Amendments2017—Subsec. (b)(1)(C). Pub. L. 115–97 inserted “a patent, invention, model or design (whether or not patented), a secret formula or process,” before “a copyright”.
2014—Subsec. (c)(2)(A). Pub. L. 113–295 struck out “beginning after December 31, 1981 ” after “years”.
1999—Subsec. (b)(1)(C), (D). Pub. L. 106–170 substituted “section 1221(a)” for “section 1221”.
Pub. L. 98–369, § 711(c)(2)(A)(iii), amended subsec. (a) generally, substituting pars. (1) to (4), for “If, during the taxable year, the recognized gains on sales or exchanges ofsection 1211 shall not apply; and
“(2) losses (including losses not compensated for by insurance or otherwise) upon the destruction, in whole or in part, theft or seizure, or requisition or condemnation of (A) Pub. L. 98–369, § 1001(b)(15), (e), substituted “6 months” for “1 year”, applicable toJune 22, 1984 , and before Jan. 1, 1988 . See Effective Date of 1984 Amendment note below.
1981—Subsec. (b)(1)(D). Pub. L. 97–34 substituted “paragraph (5)” for “paragraph (6)”.
1978—Subsec. (b)(1)(D). Pub. L. 95–600 added subpar. (D).
1976—Subsecs. (a), (b)(1), (4). Pub. L. 94–455, § 1402(b)(2), provided that “9 months” would be changed to “1 year” wherever appearing.
Pub. L. 94–455, § 1402(b)(1)(R), provided that in subsecs. (a), first and last sentences, (a)(2), and (b)(1), (4), “6 months” would be changed to “9 months” for taxable years beginning in 1977.
1969—Subsec. (a). Pub. L. 91–172, § 516(b), provided that casualty (or theft) losses with respect to depreciablePub. L. 91–172, § 514(b)(2), inserted reference to a letter or memorandum.
Subsec. (b)(3). Pub. L. 91–172, § 212(b)(1), redesignated existing provisions as subpar. (B) and added subpar. (A).
1964—Subsec. (b)(2). Pub. L. 88–272 inserted reference to iron ore in text, and to domestic iron ore in heading.
1958—Subsec. (a). Pub. L. 85–866 inserted provision respecting casualty losses sustained upon certain uninsured Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment Effective Date of 2014 AmendmentAmendment by Pub. L. 113–295 effective Dec. 19, 2014 , subject to a savings provision, see section 221(b) of Pub. L. 113–295, set out as a note under section 1 of this title.
Effective Date of 1999 AmendmentAmendment by Pub. L. 106–170 applicable to any instrument held, acquired, or entered into, any transaction entered into, and supplies held or acquired on or after Dec. 17, 1999 , see section 532(d) of Pub. L. 106–170, set out as a note under section 170 of this title.
Effective Date of 1984 Amendment“The amendment made by subsection (a) [amending this section] shall apply to net section 1231 gains for taxable years beginning after December 31, 1984 .”
Amendment by section 711(c)(2)(A)(iii) of Pub. L. 98–369 applicable to taxable years beginning after Dec. 31, 1983 , see section 711(c)(2)(A)(v) of Pub. L. 98–369, set out as a note under section 165 of this title.
Effective Date of 1981 Amendment Effective Date of 1978 Amendment“The amendment made by paragraph (1) [amending this section] shall apply with respect to sales, exchanges, and contributions made after October 4, 1976 .”
Effective Date of 1976 AmendmentPub. L. 94–455, title XIV, § 1402(b)(1), Oct. 4, 1976 , 90 Stat. 1731, provided that the amendment made by that section is effective with respect to taxable years beginning in 1977.
Pub. L. 94–455, title XIV, § 1402(b)(2), Oct. 4, 1976 , 90 Stat. 1732, provided that the amendment made by that section is effective with respect to taxable years beginning after Dec. 31, 1977 .
Effective Date of 1969 Amendment“The amendments made by paragraph (1) [amending this section] shall apply to livestock acquired after December 31, 1969 .”
Amendment by section 516(b) of Pub. L. 91–172 applicable to taxable years beginning after Dec. 31, 1969 , see section 516(d)(2) of Pub. L. 91–172, set out as a note under section 1001 of this title.
Effective Date of 1964 AmendmentAmendment by Pub. L. 88–272 applicable with respect to amounts received or accrued in taxable years beginning after Dec. 31, 1963 , attributable to iron ore mined in such years, see section 227(c) of Pub. L. 88–272, set out as a note under section 272 of this title.
Effective Date of 1958 Amendment“The amendment made by subsection (a) [amending this section] shall apply to taxable years beginning after December 31, 1957 .”