1231 Losses

[JG EA]

I have a question on something I should know, but .....

In TTB the 5 years starts running with the loss. What if there is a gain in year one, losses in year 2, 3, 4, and gain in year 5. Do you have ordinary income in year 5 without taking year 1 into consideration? It says cummulative. So perhaps in my question the answer is yes you take year one into consideration.

But then what if there are four years of losses and the next is a gain. Do you forget about the gain that happened in the year before the four years of losses?

[abby]

The loss year is year 1

Hi JG

The way I understand the rule, if you get a benefit of ordinary loss treatment for a sec 1231 loss, it is tracked for 5 years so that any gains will receive ordinary income treatment instead of capital gain treatment up to the loss amount.

Any net loss year is year 1 for the 5 year tracking of that loss - or more correctly - year zero.

[JG EA]

Thanks, It doesn't seem quite fair though does it. Especially as you say it starts the process. You could have had a big gain and then the next year a loss. But anyway I get it - thanks for your help.

[erchess]

Ok this thread confused me

so I did what I usually do when something about taxes confuses me: I read about it in TTB.
That reading was somewhat enlightening in that I have separated in my mind Sections 1244, 1202 and 1245.

But I didn't find anything on Sec 1231 so I would like one of you smart cookies to tell me where in TTB to find out about that.

Also, assuming a taxpayer has a sale of stock that qualifies for such treatment, how would a preparer who is not also the financial adviser know? I think one possible working answer is that all of these code sections involve very small cap stocks of which the client was the first owner.. Thus if the taxpayer sold stock of a large corporation that is a household name then it doesn't qualify. Am I understanding correctly?

[Bees Knees]

so I did what I usually do when something about taxes confuses me: I read about it in TTB.
That reading was somewhat enlightening in that I have separated in my mind Sections 1244, 1202 and 1245.

But I didn't find anything on Sec 1231 so I would like one of you smart cookies to tell me where in TTB to find out about that.

Page 6-13, Section 1231—Special Treatment for Gains and Losses on Sale of Business Assets