Gain and Loss Character, Recapture, and Installment Reporting

This chapter turns from recognition to character. It covers how business-property gains are netted, when depreciation must be recaptured as ordinary income, how installment reporting spreads gain over time, and how Section 1202 can exclude eligible stock gains entirely.

In This Chapter

• Section 1231 Netting, Capital Versus Ordinary Character, and the Lookback Rule explains the core netting framework for business-property dispositions.
• Depreciation Recapture Under Sections 1245 and 1250 covers the ordinary-income recapture rules that override pure capital treatment.
• Installment Sales, Imputed Interest, and Dealer-Disposition Limits addresses deferred gain recognition over time.
• Section 1202 QSBS Exclusions, Holding Periods, and Eligibility Limits explains when eligible small-business stock gains can be excluded.

How to Use This Chapter

• Work the Section 1231 and recapture lessons together because character questions often require both frameworks.
• Use the installment and QSBS lessons as follow-ons once the underlying realized-versus-recognized gain rules are clear.

In this section

• Section 1231 Netting, Capital Versus Ordinary Character, and the Lookback Rule
  Section 1231 netting rules covering business-property gains, losses, and five-year lookback recharacterization.
• Depreciation Recapture Under Sections 1245 and 1250
  Depreciation-recapture rules for Sections 1245 and 1250, including ordinary-income conversion and real-property treatment.
• Installment Sales, Imputed Interest, and Dealer-Disposition Limits
  Installment-sale rules covering gross-profit ratio, imputed interest, and dealer-disposition limits.
• Section 1202 QSBS Exclusions, Holding Periods, and Eligibility Limits
  Section 1202 QSBS rules covering holding periods, eligibility thresholds, exclusion limits, and state conformity issues.