Reporting Involuntary Conversion of Business Property IRC 1231
Generally when §1231 gains exceed §1231 losses during the year, the net §1231 gain is taxed as a long-term capital gain. However, if there are nonrecaptured §1231 losses from prior years, the net §1231 gain is taxed as ordinary income [§1231(c)].
Nonrecaptured §1231 losses are the aggregate net §1231 losses deducted in the five preceding tax years that have not been used to offset §1231 gains. They cannot be carried back, are used in chronological order and expire if they have not been recaptured after five years.