LOOKBACK PROVISION: EXAMPLE 2
01.Core Concepts
Blanca has a Section 1231 gain for the current year (2026) of $15,000. In prior years, Blanca had the following net Section 1231 transactions: Blanca would have to recognize $6,000 of her 2026 gain as ordinary income since, in 2025 and 2024, she had Section 1231 losses. The remaining $9,000 of Blanca’s Section 1231 gain ($15,000 - $6,000) would be treated as a Section 1231 capital gain. Net Section 1231 Transaction Year $4,000 Section 1231 Loss 2025 $2,000 Section 1231 Loss 2024 No Section 1231 Transactions 2023 No Section 1231 Transactions 2022 No Section 1231 Transactions 2021 $8,000 Section 1231 Gain 2020 $2,000 Section 1231 Gain 2019