what is section 1231 gain 
section 1231 property is a type of property defined by section 1231 of the u s internal revenue code section 1231 property is real or depreciable business property held for more than one year a section 1231 gain from the sale of a property is taxed at the lower capital gains tax rate versus the rate for ordinary income if the sold property was held for less than one year the 1231 gain does not apply examples of section 1231 properties include buildings machinery land timber and other natural resources unharvested crops cattle livestock and leaseholds that are at least one year old however section 1231 property does not include poultry and certain other animals patents inventions and inventory such as goods held for sale to customers 1investopedia ellen lindnerunderstanding section 1231 gainbroadly speaking if gains on property fitting section 1231 s definition are more than the adjusted basis and amount of depreciation the income is counted as capital gains and as a result it is taxed at a lower rate than ordinary income however when losses are recorded on section 1231 property whereby the loss is classified as an ordinary loss it s 100 deductible against income ordinarily if income was qualified as capital gains so would any losses which can only be deductible up to 3 000 for the tax year and any losses in excess of that figure would be arrived at in the following year the section 1231 law makes it so taxpayers and business owners get the best of both worlds 2the irs handles the taxation of a section 1231 gain as a regular capital gain when there is income but not when there is a loss capital gains tax is a tax on the profit when you sell something that s increased in value it s the gain you make that s taxed not the amount of money you receive types of section 1231 transactionsthe following are considered 1231 transactions under irs regulations 1section 1231 property is related to section 1245 property and section 1250 property section 1231 defines the tax treatment of the gains and losses of property fitting the definitions of sections 1245 and 1250 on form 4797 3section 1231 vs section 1245 propertysection 1245 property cannot include buildings or structural components unless the structure is designed specifically to handle the stresses and demands of a specific use and can t be used for any other use in which case it can be considered closely related to the property it houses section 1245 property is any asset that is depreciable or subject to amortization and meets any of the following descriptions in publication 544 sales and other dispositions of assets 4if the sale of section 1245 property is less than the depreciation or amortization on the property or if the gains on the disposition of the property are less than the original cost gains are recorded as normal income and are taxed as such if the gain on the disposition of the section 1245 property is greater than that original cost then those gains are taxed as capital gains if the section 1245 property was acquired through a like kind exchange the amounts you claimed on the property you used in the exchange are included in the depreciation or amortization amount as would be the amounts a previous owner of section 1245 property claimed if the adjusted basis was used as a reference to your own 5section 1231 vs section 1250 propertythe irs defines section 1250 property as all real property such as land and buildings that are subject to the allowance for depreciation as well as a leasehold of land or section 1250 property 6much like with section 1245 property gains on section 1250 property qualify as ordinary income if they are less than or equal to the amount the property has depreciated and if the gains exceed the depreciation then the income is treated as capital gains during the year of the sale depreciation recapture is taxable as ordinary income if the sale of the property is executed in an installment method 7while section 1231 was introduced in the 1954 irs code the content of the tax code referring to gains received upon deposition of depreciable and real property was introduced in 1939 in section 117 j 8example of section 1231 propertylet s say a building is bought at 2 million and then has another 2 million put into it in the form of refurbishment updating a c units windows and a new roof with an amortization rate of 50 over 10 years so let s say then that 10 years after the building had 2 million put into it it is sold at a price of 6 million the recorded gains on that sale would be 4 million not 2 because the cost of refurbishment would be capitalized on the books that 4 million sale would be taxed as capital gains because the property was sold for more than the amount that it had depreciated 