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.
John R. Dundon, EA [720-234-1177, John@JohnRDundon.com]. John is a lifelong student of the US Tax Code; enrolled with the United States Treasury Department to practice before the IRS (Enrolled Agent # 00085353); under contract with the IRS as a Certified Individual Taxpayer Identification Number (ITIN) Acceptance Agent; regulated under USC 31 Section 330 & USC 26 Section 7525a.3.A; governed under US Treasury Cir. 230.
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