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USC Title 26 enacted through 2008

§ 1231. Property used in the trade or business and involuntary conversions

 
(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 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 beginning after December 31, 1981, 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.








Tax Code (Internal Revenue Code) Section Index


U.S. GAAP by Codification Topic
 
105 GAAP Hierarchy
105 GAAP History

205 Presentation of Financial Statements
205-20 Discontinued Operations
210 Balance Sheet
210-20 Offsetting
220 Comprehensive Income
225 Income Statement
225-20 Extraordinary and Unusual Items
230 Statement of Cash Flows
250 Accounting Changes and Error Corrections
260 Earnings per Share
270 Interim Reporting

310 Impairment of a Loan
320 Investment Securities
320 Other-Than-Temporary Impairments, FSP FAS 115-2
320-10-05 Overview of Investments in Other Entities
320-10-35 Reclassification of Investments in Securities
323-10 Equity Method Investments
323-30 Investments in Partnerships and Joint Ventures
325-20 Cost Method Investments
330 Inventory

340-20 Capitalized Advertising Costs
350-20 Goodwill
350-30 Intangibles Other than Goodwill
350-40 Internal-Use Software
350-50 Website Development Costs
360 Property, Plant and Equipment
360-20 Real Estate Sales

410 Asset Retirement and Environmental Obligations
420 Exit or Disposal Cost Obligations
450 Contingencies
450-20 Loss Contingencies
450-30 Gain Contingencies
480 Redeemable Financial Instruments

505-20 Stock Dividends, Stock Splits
505-30 Treasury Stock

605 SEC Staff Accounting Bulletin, Topic 13
605-25 Revenue Recognition - Multiple Element Arrangements

715-30 Defined Benefit Plans - Pension
718 Share-Based Payment
730 Research and Development
730-20 Research and Development Arrangements

805 Business Combinations
810 Consolidation
810 Noncontrolling Interests
810 Consolidation of Variable Interest Entities, SFAS 167

815 Derivatives and Hedging Overview

820 Fair Value Measurements
820 Fair value when the markets are not active, FSP FAS 157-4
825 Fair Value Option

830 Foreign Currency Matters
830-20 Foreign Currency Transactions
830-30 Translation of Financial Statements
835 Interest
835-20 Capitalization of Interest
835-30 Imputation of Interest

840 Leases
840-20 Operating Leases
840-30 Capital Leases
840-40 Sale-Leaseback Transactions
845 Nonmonetary Transactions

855 Subsequent Events
860-20 Sale of Financial Assets, SFAS 166
860-50 Servicing Assets and Liabilities, SFAS 156

985-20 Costs of software to be sold


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Accounting Topics
Tax Code (Internal Revenue Code) Section Index




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