How is a Section 1231 loss taken as an ordinary loss?

In broad terms, if a company’s yearly combined 1231 gains and losses result in a net loss, it’s considered an ordinary loss, which companies can use to offset their ordinary income for the current year. If the result is a net gain, the income incurs taxes at the lower rate.

What happens when a taxpayer has both Section 1231 gains and losses?

The total loss is reported as a Section 1231 loss, which is carried to Form 1040 as an ordinary loss. According to Form 4797 instructions, Section 1231 losses must be tracked over the course of 5 years in order to be netted against any Section 1231 gains for determining how much gain is ordinary income under recapture rules.

How is a Section 1231 loss reported on Form 1040?

According to Form 4797 instructions, Section 1231 losses must be tracked over the course of 5 years in order to be netted against any Section 1231 gains for determining how much gain is ordinary income under recapture rules. UltraTax CS tracks these losses on the Carryover Report (as displayed below). These amounts are proforma'd from year to year.