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

Legislative history

Reconstructed from this section’s Code source credit and amendment notes, resolved against the local Statutes at Large. Editorial notes are evidence, not the law that made the change.

1. 1954

   Aug. 16, 1954, ch. 736, 68A Stat. 325 · 68A Stat. 325

   Enacted · 26 U.S.C. § 1231

   Aug. 16, 1954, ch. 736, 68A Stat. 325

   Source evidence

   Code source credit
   Aug. 16, 1954, ch. 736, 68A Stat. 325

2. 1958

   Technical Amendments Act of 1958

   Pub. L. 85–866 title I § 49(a) · 72 Stat. 1606

   Inserted · 26 U.S.C. § 1231(a)

   Pub. L. 85–866 inserted provision respecting casualty losses sustained upon certain uninsured property

   Source evidence

   Code amendment note
   Subsec. (a). Pub. L. 85–866 inserted provision respecting casualty losses sustained upon certain uninsured property.

   Enacted provision · exact public law section
   (a) Treatment as Ordinary Loss.— Section 1231 (a) (relating to property used in the trade or business and involuntary conversions) is amended by adding at the end thereof the following new sentence: “In the case of any property used in the trade or business and of any capital asset held for more than 6 months and held for the production of income, this subsection shall not apply to any loss, in respect of which the taxpayer is not compensated for by insurance in any amount, arising from fire, storm, shipwreck, or other casualty, or from theft.”

3. 1964

   Revenue Act of 1964

   Pub. L. 88–272 title II § 227(a)(2) · 78 Stat. 19

   Inserted · 26 U.S.C. § 1231(b)(2)

   Pub. L. 88–272 inserted reference to iron ore in text, and to domestic iron ore in heading

   Source evidence

   Code amendment note
   Subsec. (b)(2). Pub. L. 88–272 inserted reference to iron ore in text, and to domestic iron ore in heading.

   Enacted provision · exact public law section
   (2) Amendment of section 1231 (b).— Section 1231(b) (2) 26 USC 1231. (defining property used in the trade or business) is amended to read as follows: “(2) Timber, coal, or domestic iron ore.— Such term includes timber, coal, and iron ore with respect to which section 631 applies.”

4. 1969

   Tax Reform Act of 1969

   Pub. L. 91–172 § 516(b) · 83 Stat. 487

   Changed · 26 U.S.C. § 1231(a)

   Pub. L. 91–172, § 516(b), provided that casualty (or theft) losses with respect to depreciable property and real estate used in trade or business and capital assets held for the production of income as well as personal assets are to be consolidated with casualty (or theft) gains with respect to this type of property and if the casualty losses exceed the casualty gains, the net loss is treated as an ordinary loss without regard to whether there may be noncasualty gains under this section, but, if the casualty gains exceed the casualty losses, the net gain is treated as a gain under this section and must be consolidated with other gains and losses under this section

   Source evidence

   Code amendment note
   Subsec. (a). Pub. L. 91–172, § 516(b), provided that casualty (or theft) losses with respect to depreciable property and real estate used in trade or business and capital assets held for the production of income as well as personal assets are to be consolidated with casualty (or theft) gains with respect to this type of property and if the casualty losses exceed the casualty gains, the net loss is treated as an ordinary loss without regard to whether there may be noncasualty gains under this section, but, if the casualty gains exceed the casualty losses, the net gain is treated as a gain under this section and must be consolidated with other gains and losses under this section.

   Enacted provision · exact public law section
   (b) Certain Casualty Losses Under Section 1231.— Section 1231 68A Stat. 325. (a) (relating to property used in the trade or business and involuntary conversions) is amended by striking out all that follows paragraph (1) and inserting in lieu thereof the following: “(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) property used in the trade or business or (B) capital assets held for more than 6 months shall be considered losses from a compulsory or involuntary conversion. 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 property used in the trade or business or of any capital asset held for more than 6 months, 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.”

5. 1969

   Tax Reform Act of 1969

   Pub. L. 91–172 § 514(b)(2) · 83 Stat. 487

   Inserted · 26 U.S.C. § 1231(b)(1)(C)

   Pub. L. 91–172, § 514(b)(2), inserted reference to a letter or memorandum

   Source evidence

   Code amendment note
   Subsec. (b)(1)(C). Pub. L. 91–172, § 514(b)(2), inserted reference to a letter or memorandum.

   Enacted provision · exact public law section
   (2) Section 1231(b)(1)(C) (relating to definition of property used in the trade or business) is amended by inserting “, a letter or memorandum” before “, or similar property”.

6. 1969

   Tax Reform Act of 1969

   Pub. L. 91–172 § 212(b)(1) · 83 Stat. 487

   1. Redesignated · 26 U.S.C. § 1231(b)(3)

      Pub. L. 91–172, § 212(b)(1), redesignated existing provisions as subpar. (B)

   2. Added · 26 U.S.C. § 1231(b)(3)

      Pub. L. 91–172, § 212(b)(1), added subpar. (A)

   Source evidence

   Code amendment note
   Subsec. (b)(3). Pub. L. 91–172, § 212(b)(1), redesignated existing provisions as subpar. (B) and added subpar. (A).

   Enacted provision · exact public law section
   (1) Amendment of section 1231.— Section 1231(b)(3) (relating 68A Stat. 325. to property used in a trade or business) is amended to read as follows: “(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.”

7. 1976

   Pub. L. 94–455 § 1402(b)(2) · 90 Stat. 1520

   Changed · 26 U.S.C. § 1231(a); 26 U.S.C. § 1231(b)(1); 26 U.S.C. § 1231(4)

   Pub. L. 94–455, § 1402(b)(2), provided that “9 months” would be changed to “1 year” wherever appearing

   Source evidence

   Code amendment note
   Subsecs. (a), (b)(1), (4). Pub. L. 94–455, § 1402(b)(2), provided that “9 months” would be changed to “1 year” wherever appearing.

   Enacted provision · exact public law section
   (2) Taxable years beginning after 1977.— Effective with respect to taxable years beginning after December 31, 1977, each provision referred to in paragraph (1) is amended by striking out Ante, p. 1731. “9 months” each place it appears and inserting in lieu thereof “1 year”.

8. 1976

   Pub. L. 94–455 § 1402(b)(1)(R) · 90 Stat. 1520

   Changed · 26 U.S.C. § 1231(a); 26 U.S.C. § 1231(b)(1); 26 U.S.C. § 1231(4)

   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

   Target inherited from the preceding amendment note.

   Source evidence

   Code amendment note
   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.

   Enacted provision · exact public law section
   (R) Section 1231 (relating to property used in the trade or business and involuntary conversions).

9. 1978

   Pub. L. 95–600 title VII § 701(ee)(1) · 92 Stat. 2763

   Added · 26 U.S.C. § 1231(b)(1)(D)

   Pub. L. 95–600 added subpar. (D)

   Source evidence

   Code amendment note
   Subsec. (b)(1)(D). Pub. L. 95–600 added subpar. (D).

   Enacted provision · exact public law section
   (1) 26 USC 1231. In general.— Paragraph (1) of section 1231(b) (relating to definition of property used in trade or business) is amended— (A) by striking out “or” at the end of subparagraph (B), (B) by striking out the period at the end of subparagraph (C) and inserting in lieu thereof a comma and “or”, and (C) by adding at the end thereof the following new subparagraph: “(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 26 USC 1221. paragraph (6) of section 1221.”.

10. 1981

    Economic Recovery Tax Act of 1981

    Pub. L. 97–34 title V § 505(c)(1) · 95 Stat. 175

    Substituted · 26 U.S.C. § 1231(b)(1)(D)

    Pub. L. 97–34 substituted “paragraph (5)” for “paragraph (6)”

    Source evidence

    Code amendment note
    Subsec. (b)(1)(D). Pub. L. 97–34 substituted “paragraph (5)” for “paragraph (6)”.

    Enacted provision · exact public law section
    (1) Subparagraph (D) of section 1231(b)(1) is amended by striking out “paragraph (6)” and inserting in lieu thereof “paragraph (5)”.

11. 1984

    Tax Reform Act of 1984

    Pub. L. 98–369 § 1001(b)(15) · 98 Stat. 494

    Substituted · 26 U.S.C. § 1231(a)

    Pub. L. 98–369, § 1001(b)(15), (e), substituted “6 months” for “1 year” wherever appearing, applicable to property acquired after June 22, 1984, and before Jan. 1, 1988. See Effective Date of 1984 Amendment note below

    Source evidence

    Code amendment note
    Subsec. (a). Pub. L. 98–369, § 1001(b)(15), (e), substituted “6 months” for “1 year” wherever appearing, applicable to property acquired after June 22, 1984, and before Jan. 1, 1988. See Effective Date of 1984 Amendment note below.

    Enacted provision · exact public law section
    (15) Section 1231 (relating to property used in the trade or business and involuntary conversions).

12. 1984

    Tax Reform Act of 1984

    Pub. L. 98–369 § 711(c)(2)(A)(iii) · 98 Stat. 494

    1. Amended · 26 U.S.C. § 1231(a)

       Pub. L. 98–369, § 711(c)(2)(A)(iii), amended subsec. (a) generally

    2. Substituted · 26 U.S.C. § 1231(a)

       Pub. L. 98–369, § 711(c)(2)(A)(iii), substituting pars. (1) to (4), for “If, during the taxable year, the recognized gains on sales or exchanges of property used in the trade or business, plus the recognized gains 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) of property used in the trade or business and capital assets held for more than 1 year into other property or money, exceed the recognized losses from such sales, exchanges, and conversions, such gains and losses shall be considered as gains and losses from sales or exchanges of capital assets held for more than 1 year. If such gains do not exceed such losses, such gains and losses shall not be considered as gains and losses from sales or exchanges of capital assets. For purposes of this subsection—

    Target inherited from the preceding amendment note.

    Source evidence

    Code amendment note
    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 of property used in the trade or business, plus the recognized gains 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) of property used in the trade or business and capital assets held for more than 1 year into other property or money, exceed the recognized losses from such sales, exchanges, and conversions, such gains and losses shall be considered as gains and losses from sales or exchanges of capital assets held for more than 1 year. If such gains do not exceed such losses, such gains and losses shall not be considered as gains and losses from sales or exchanges of capital assets. For purposes of this subsection—

    “(1) in determining under this subsection whether gains exceed losses, the gains described therein shall be included only if and to the extent taken into account in computing gross income and the losses described therein shall be included only if and to the extent taken into account in computing taxable income, except that section 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) property used in the trade or business or (B) capital assets held for more than 1 year shall be considered losses from a compulsory or involuntary conversion. 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 property used in the trade or business or of any capital asset held for more than 1 year, 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.”

    Enacted provision · exact public law section
    (iii) Section 1231 not to apply to personal casualty gains or losses.— Subsection (a) of section 1231 (relating to property used in the trade or business and involuntary conversions) is amended to read as follows: “(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.”

13. 1984

    Tax Reform Act of 1984

    Pub. L. 98–369 § 1001(b)(15) · 98 Stat. 494

    Substituted · 26 U.S.C. § 1231(b)(1); 26 U.S.C. § 1231(b)(4)

    Pub. L. 98–369, § 1001(b)(15), (e), substituted “6 months” for “1 year”, applicable to property acquired after June 22, 1984, and before Jan. 1, 1988. See Effective Date of 1984 Amendment note below

    Source evidence

    Code amendment note
    Subsec. (b)(1), (4). Pub. L. 98–369, § 1001(b)(15), (e), substituted “6 months” for “1 year”, applicable to property acquired after June 22, 1984, and before Jan. 1, 1988. See Effective Date of 1984 Amendment note below.

    Enacted provision · exact public law section
    (15) Section 1231 (relating to property used in the trade or business and involuntary conversions).

14. 1984

    Tax Reform Act of 1984

    Pub. L. 98–369 § 176(a) · 98 Stat. 494

    Added · 26 U.S.C. § 1231(c)

    Pub. L. 98–369, § 176(a), added subsec. (c)

    Source evidence

    Code amendment note
    Subsec. (c). Pub. L. 98–369, § 176(a), added subsec. (c).

    Enacted provision · exact public law section
    (a) General Rule.— Section 1231 (relating to property used in the 26 USC 1231. trade or business and involuntary conversions) is amended by adding at the end thereof the following new subsection: “(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 Post, p. 944. rules of paragraph (4) of subsection (a) shall apply.”

15. 1999

    Tax Relief Extension Act of 1999

    Pub. L. 106–170 title V § 532(c)(1)(G) · 113 Stat. 1860

    Substituted · 26 U.S.C. § 1231(b)(1)(C); 26 U.S.C. § 1231(b)(1)(D)

    Pub. L. 106–170 substituted “section 1221(a)” for “section 1221”

    Source evidence

    Code amendment note
    Subsec. (b)(1)(C), (D). Pub. L. 106–170 substituted “section 1221(a)” for “section 1221”.

    Enacted provision · exact public law section
    (G) 26 USC 1231. Subparagraphs (C) and (D) of section 1231(b)(1).

16. 2014

    Tax Technical Corrections Act of 2014

    Pub. L. 113–295 div. A title II § 221(a)(81) · 128 Stat. 4010

    Struck · 26 U.S.C. § 1231(c)(2)(A)

    Pub. L. 113–295 struck out “beginning after December 31, 1981” after “years”

    Source evidence

    Code amendment note
    Subsec. (c)(2)(A). Pub. L. 113–295 struck out “beginning after December 31, 1981” after “years”.

    Enacted provision · exact public law section
    (81) Property used in the trade or business and involuntary conversions.— Subparagraph (A) of section 1231(c)(2) is amended by striking “beginning after December 31, 1981”.

17. 2017

    Pub. L. 115–97 title I § 13314(b) · 131 Stat. 2054

    Inserted · 26 U.S.C. § 1231(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”

    Source evidence

    Code amendment note
    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”.

    Enacted provision · exact public law section
    (b) Conforming Amendment.— Section 1231(b)(1)(C) is amended by inserting “a patent, invention, model or design (whether or not patented), a secret formula or process,” before “a copyright”.

    Effective date note
    Amendment by Pub. L. 115–97 applicable to dispositions after Dec. 31, 2017, see section 13314(c) of Pub. L. 115–97, set out as a note under section 1221 of this title.

18 of 19 references resolved to an enrolled provision · 1 partial