the loss in year one treated as an ordinary loss. Thus, if the 1231 gain is disposed of after year one, but before what becomes the seventh year under 1231(c)(2)(A), it will receive ordinary income treatment. If held onto and disposed of after the seventh year, it may be treated as a capital gain. See also Tax deduction Depreciation recapture References https://www.law.cornell.edu/uscode/text/26/1231- External links IRS website 0179