Cases: Buffalo Tool & Die Mfg. Co. v. Commissioner, 74 T.C. 441 (1980); Estate of Delman v. Commissioner, 73 T.C. 15 (1979)
Final rules 2
(a) General rule
Amended 1976, 1978, 1981, 1984, 1985, 1986, 2004
- 2004 Pub. L. 108-357 Pub. L. 108–357, § 886(b)(2), struck out par. (4) which related to special rule for player contracts if a franchise to conduct any sports enterprise is sold or exchanged.
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 201(d)(11)(D), struck out par. (5) which defined “section 1245 recovery property” and par. (6) which provided special rule for qualified leased property.
- 1985 Pub. L. 99-121 Pub. L. 99–121 substituted “19-year real property” for “18-year real property”.
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 111(e)(5), substituted “18-year real property and low-income housing” for “15-year real property”.
- 1981 Pub. L. 97-34 Pub. L. 97–34, § 204(c), added par. (5).
- 1981 Pub. L. 97-34 Pub. L. 97–34, § 204(d), added par. (6).
- 1978 Pub. L. 95-600 Pub. L. 95–600, § 701(w)(2), inserted “attributable to periods after December 31, 1975,” after “for the depreciation”, “incurred after December 31, 1975,” after “allowable for losses”, and “described in clause (i)” after “of the amounts”.
- 1978 Pub. L. 95-600 Pub. L. 95–600, § 701(w)(1), struck out provisions relating to the aggregate of the amounts treated as ordinary income.
- 1976 Pub. L. 94-455 Pub. L. 94–455, § 212(b)(1), added par. (4).
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(1) Ordinary income Except as otherwise provided in this section, if section 1245 property is disposed of the amount by which the lower of—
Amended 1976, 1981, 1986
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 201(d)(11)(A), struck out “during a taxable year beginning after December 31, 1962, or section 1245 recovery property is disposed of after December 31, 1980,” after “if section 1245 property is disposed of”.
- 1981 Pub. L. 97-34 Pub. L. 97–34, § 204(a), inserted reference to section 1245 recovery property disposed of after Dec. 31, 1980, in introductory provisions.
- 1976 Pub. L. 94-455 Pub. L. 94–455, § 1901(b)(3)(K), substituted “ordinary income” for “gain from the sale or exchange of property which is neither a capital asset nor property described in section 1231”.
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(A) the recomputed basis of the property, or
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(i) in the case of a sale, exchange, or involuntary conversion, the amount realized, or
(ii) in the case of any other disposition, the fair market value of such property,
exceeds the adjusted basis of such property shall be treated as ordinary income. Such gain shall be recognized notwithstanding any other provision of this subtitle.
(2) Recomputed basis For purposes of this section—
Amended 1964, 1969, 1971, 1976, 1978, 1980, 1981, 1986
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 201(d)(11)(B), amended par. (2) generally, restating former subpars. (A) to (E) and concluding provisions as subpars. (A) to (C).
- 1981 Pub. L. 97-34 Pub. L. 97–34, §§ 202(b)(1)–(3), 204(b), inserted reference to section 179 in subpar. (D), added subpar. (E), and, in provisions following subpar. (E), and inserted references to section 179 in three places. Pub. L. 97–34, § 212(d)(2)(F), in provisions following subpar. (E), substituted “191 (as in effect before its repeal by the Economic Recovery Tax Act of 1981)” for “191” in two places.
- 1980 Pub. L. 96-451 Pub. L. 96–451, § 301(c)(1)(A), (B), inserted references to section 194 in subpar. (D) and text following subpar. (D).
- 1980 Pub. L. 96-223 Pub. L. 96–223, § 251(a)(2)(C)(i)–(iii), inserted references to section 193 in subpar. (D) and text following subpar. (D).
- 1978 Pub. L. 95-600 Pub. L. 95–600, § 701(f)(3)(A), struck out from the listed sections in subpar. (D) reference to 191 and inserted “(in the case of property described in paragraph (3)(C))” before “191” in two places in next to last sentence.
- 1976 Pub. L. 94-455 Pub. L. 94–455, §§ 2122(b)(3)(B), 2124(a)(2), inserted reference to sections 190 and 191.
- 1976 Pub. L. 94-455 (D). Pub. L. 94–455, §§ 1901(b)(11)(D), 1951(c)(2)(C), 2122(b)(3)(A), (C), 2124(a)(2), in text following subpar. (D): struck out reference to section 187 in two places; inserted “(as in effect before its repeal by the Tax Reform Act of 1976),” after “section 168,” in two places; inserted provision for treatment for purposes of this section of any deduction allowable under section 190 as if it were a deduction allowable for amortization; and inserted reference to section 191 in two places, respectively.
- 1971 Pub. L. 92-178 Pub. L. 92–178, § 303(c)(1), inserted reference to section 188 in two places in text following subpar. (D).
- 1969 Pub. L. 91-172 Pub. L. 91–172, §§ 212(a)(1), 704(b)(4)(A), (B), added subpar. (C) and inserted references to sections 169, 185, and 187, and added subpar. (D).
- 1964 Pub. L. 88-272 Pub. L. 88–272 redefined “recomputed basis” with respect to elevators or escalators in par. (2), and inserted subpar. (C) in par. (3).
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(A) In general The term “recomputed basis” means, with respect to any property, its adjusted basis recomputed by adding thereto all adjustments reflected in such adjusted basis on account of deductions (whether in respect of the same or other property) allowed or allowable to the taxpayer or to any other person for depreciation or amortization.
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(B) Taxpayer may establish amount allowed For purposes of subparagraph (A), if the taxpayer can establish by adequate records or other sufficient evidence that the amount allowed for depreciation or amortization for any period was less than the amount allowable, the amount added for such period shall be the amount allowed.
(C) Certain deductions treated as amortization Any deduction allowable under section 179, 179B, 179C, 179D, 179E, 181, 190, 193, or 194 shall be treated as if it were a deduction allowable for amortization.
Amended 1989, 1993, 1997, 2004, 2005, 2006, 2014
- 2014 Pub. L. 113-295 Pub. L. 113–295 struck out “179A,” after “179,”.
- 2006 Pub. L. 109-432 Pub. L. 109–432 inserted “179E,” after “179D,”.
- 2005 Pub. L. 109-135 Pub. L. 109–135, § 403(e)(2), (i)(2), inserted “181,” after “179B,” and substituted “193, or 194” for “or 193”.
- 2005 Pub. L. 109-58 Pub. L. 109–58, § 1331(b)(2), inserted “179D,” after “179C,”.
- 2005 Pub. L. 109-58 Pub. L. 109–58, § 1323(b)(1), inserted “179C,” after “179B,”.
- 2004 Pub. L. 108-357 Pub. L. 108–357, § 338(b)(5), inserted “179B,” after “179A,”.
- 1997 Pub. L. 105-34 Pub. L. 105–34 inserted “179A,” after “179,”.
- 1993 Pub. L. 103-66 Pub. L. 103–66, § 13261(f)(4), substituted “or 193” for “193, or 1253(d)(2) or (3)”.
- 1989 Pub. L. 101-239 Pub. L. 101–239, § 7622(b)(2)(A)[(d)(2)(A)], substituted “193, or 1253(d)(2) or (3)” for “or 193”.
(3) Section 1245 property For purposes of this section, the term “section 1245 property” means any property which is or has been property of a character subject to the allowance for depreciation provided in section 167 and is either—
(B) other property (not including a building or its structural components) but only if such other property is tangible and has an adjusted basis in which there are reflected adjustments described in paragraph (2) for a period in which such property (or other property)—
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(i) was used as an integral part of manufacturing, production, or extraction or of furnishing transportation, communications, electrical energy, gas, water, or sewage disposal services,
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(ii) constituted a research facility used in connection with any of the activities referred to in clause (i), or
Amended 1971
- 1971 Pub. L. 92-178 Pub. L. 92–178, § 104(a)(2), substituted “research facility” for “research or storage facility” in cl. (ii) and added cl. (iii).
(iii) constituted a facility used in connection with any of the activities referred to in clause (i) for the bulk storage of fungible commodities (including commodities in a liquid or gaseous state),
Amended 1971
- 1971 Pub. L. 92-178 Pub. L. 92–178, § 104(a)(2), substituted “research facility” for “research or storage facility” in cl. (ii) and added cl. (iii).
(C) so much of any real property (other than any property described in subparagraph (B)) which has an adjusted basis in which there are reflected adjustments for amortization under section 169, 179, 179B, 179C, 179D, 179E, 188 (as in effect before its repeal by the Revenue Reconciliation Act of 1990), 190, 193, or 194 [OLRC note: So in original. Probably should be followed by a comma.]
Amended 1964, 1990, 1997, 2004, 2005, 2006, 2014, 2018
- 2018 Pub. L. 115-141 Pub. L. 115–141 struck out “, 185” after “179E”.
- 2014 Pub. L. 113-295 Pub. L. 113–295 struck out “179A,” after “179,”.
- 2006 Pub. L. 109-432 Pub. L. 109–432 inserted “179E,” after “179D,”.
- 2005 Pub. L. 109-58 Pub. L. 109–58, § 1331(b)(2), inserted “179D,” after “179C,”.
- 2005 Pub. L. 109-58 Pub. L. 109–58, § 1323(b)(1), inserted “179C,” after “179B,”.
- 2004 Pub. L. 108-357 Pub. L. 108–357, § 338(b)(5), inserted “179B,” after “179A,”.
- 1997 Pub. L. 105-34 Pub. L. 105–34 inserted “179A,” after “179,”.
- 1990 Pub. L. 101-508 Pub. L. 101–508, § 11801(c)(6)(E), substituted “188 (as in effect before its repeal by the Revenue Reconciliation Act of 1990),” for “188,”.
- 1964 Pub. L. 88-272 Pub. L. 88–272 redefined “recomputed basis” with respect to elevators or escalators in par. (2), and inserted subpar. (C) in par. (3).
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(D) a single purpose agricultural or horticultural structure (as defined in section 168(i)(13)),
Amended 1971, 1976, 1978, 1980, 1981, 1990
- 1990 Pub. L. 101-508 Pub. L. 101–508, § 11813(b)(21), substituted “section 168(i)(13)” for “section 48(p)”.
- 1981 Pub. L. 97-34 Pub. L. 97–34, § 202(b)(3), inserted reference to section 179.
- 1980 Pub. L. 96-451 Pub. L. 96–451, § 301(c)(1)(B), inserted reference to section 194.
- 1980 Pub. L. 96-223 Pub. L. 96–223, § 251(a)(2)(C)(i), inserted reference to section 193.
- 1978 Pub. L. 95-600 Pub. L. 95–600, § 701(f)(3)(B), struck out reference to section 191.
- 1976 Pub. L. 94-455 Pub. L. 94–455, §§ 2122(b)(3)(A), 2124(a)(2), inserted reference to sections 190 and 191.
- 1971 Pub. L. 92-178 Pub. L. 92–178, § 303(c)(2), inserted reference to section 188.
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(E) a storage facility (not including a building or its structural components) used in connection with the distribution of petroleum or any primary product of petroleum,
Amended 1981
- 1981 Pub. L. 97-34 Pub. L. 97–34, § 201(b), added subpars. (E) and (F).
(F) any railroad grading or tunnel bore (as defined in section 168(e)(4)), or
Amended 1981, 1983, 1988
- 1988 Pub. L. 100-647 Pub. L. 100–647 added subpar. (F).
- 1983 Pub. L. 97-448 Pub. L. 97–448 inserted “(not including a building or its structural components)” after “a storage facility”.
- 1981 Pub. L. 97-34 Pub. L. 97–34, § 201(b), added subpars. (E) and (F).
(G) any qualified production property (as defined in section 168(n)(2)).
Amended 2025
- 2025 Pub. L. 119-21 Pub. L. 119–21 added subpar. (G).
Amended 1969, 1986, 1989, 1990, 1993, 1996
- 1996 Pub. L. 104-188 Pub. L. 104–188 reenacted heading without change and amended introductory provisions generally. Prior to amendment, introductory provisions read as follows: “For purposes of this section, the term ‘section 1245 property’ means any property which is or has been property of a character subject to the allowance for depreciation provided in section 167 (or subject to the allowance of amortization provided in)) and is either—”.
- 1993 Pub. L. 103-66 Pub. L. 103–66, § 13261(f)(5), struck out “section 185 or 1253(d)(2) or (3)” after “amortization provided in” in introductory provisions.
- 1990 Pub. L. 101-508 Pub. L. 101–508, § 11704(a)(13), substituted “or (3))” for “or (3)” in introductory provisions.
- 1989 Pub. L. 101-239 Pub. L. 101–239, § 7622(b)(2)(B)[(d)(2)(B)], substituted “section 185 or 1253(d)(2) or (3)” for “section 185” in introductory provisions.
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 201(d)(11)(C), redesignated subpars. (D), (E), and (F) as (C), (D), and (E), respectively, and struck out former subpar. (C) which read as follows: “an elevator or an escalator”.
- 1969 Pub. L. 91-172 Pub. L. 91–172, §§ 212(a)(2), 704(b)(4)(C)–(F), struck out “(other than livestock)” after “means any property” and substituted “section 167 (or subject to the allowance of amortization provided in section 185)” for “section 167” and added subpar. (D).
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(b) Exceptions and limitations
Amended 2005
- 2005 Pub. L. 109-135 Pub. L. 109–135, § 402(a)(6)(A), redesignated par. (9) as (8).
- 2005 Pub. L. 109-58 Pub. L. 109–58, § 1363(a), added par. (9).
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(1) Gifts Subsection (a) shall not apply to a disposition by gift.
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(2) Transfers at death Except as provided in section 691 (relating to income in respect of a decedent), subsection (a) shall not apply to a transfer at death.
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(3) Certain tax-free transactions If the basis of property in the hands of a transferee is determined by reference to its basis in the hands of the transferor by reason of the application of section 332, 351, 361, 721, or 731, then the amount of gain taken into account by the transferor under subsection (a)(1) shall not exceed the amount of gain recognized to the transferor on the transfer of such property (determined without regard to this section). Except as provided in paragraph (6), this paragraph shall not apply to a disposition to an organization (other than a cooperative described in section 521) which is exempt from the tax imposed by this chapter.
Amended 1975, 1990, 2005
- 2005 Pub. L. 109-135 Pub. L. 109–135, § 402(a)(6)(B), substituted “paragraph (6)” for “paragraph (7)”.
- 1990 Pub. L. 101-508 Pub. L. 101–508, § 11801(c)(8)(H), struck out “371(a), 374(a),” after “332, 351, 361,”.
- 1975 Pub. L. 94-81 Pub. L. 94–81, § 2(a)(1), (2), inserted reference to par. (7) in par. (3), and added par. (7).
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(4) Like kind exchanges; involuntary conversions, etc. If property is disposed of and gain (determined without regard to this section) is not recognized in whole or in part under section 1031 or 1033, then the amount of gain taken into account by the transferor under subsection (a)(1) shall not exceed the sum of—
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(A) the amount of gain recognized on such disposition (determined without regard to this section), plus
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(B) the fair market value of property acquired which is not section 1245 property and which is not taken into account under subparagraph (A).
(5) Property distributed by a partnership to a partner
Amended 1976, 1995, 2005
- 2005 Pub. L. 109-135 Pub. L. 109–135, § 402(a)(6)(A), redesignated pars. (6) to (9) as (5) to (8), respectively, and struck out heading and text of former par. (5). Text read as follows: “Under regulations prescribed by the Secretary, rules consistent with paragraphs (3) and (4) of this subsection shall apply in the case of transactions described in section 1081 (relating to exchanges in obedience to SEC orders).”
- 1995 Pub. L. 104-7 Pub. L. 104–7 struck out “1071 and” before “1081 transactions” in heading and “section 1071 (relating to gain from sale or exchange to effectuate policies of FCC) or” before “section 1081” in text.
- 1976 Pub. L. 94-455 Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary”.
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(A) In general For purposes of this section, the basis of section 1245 property distributed by a partnership to a partner shall be deemed to be determined by reference to the adjusted basis of such property to the partnership.
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(B) Adjustments added back In the case of any property described in subparagraph (A), for purposes of computing the recomputed basis of such property the amount of the adjustments added back for periods before the distribution by the partnership shall be—
(i) the amount of the gain to which subsection (a) would have applied if such property had been sold by the partnership immediately before the distribution at its fair market value at such time, reduced by
(ii) the amount of such gain to which section 751(b) applied.
(6) Transfers to tax-exempt organization where property will be used in unrelated business
Amended 2005
- 2005 Pub. L. 109-135 Pub. L. 109–135, § 402(a)(6)(A), redesignated pars. (6) to (9) as (5) to (8), respectively, and struck out heading and text of former par. (5). Text read as follows: “Under regulations prescribed by the Secretary, rules consistent with paragraphs (3) and (4) of this subsection shall apply in the case of transactions described in section 1081 (relating to exchanges in obedience to SEC orders).”
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(A) In general The second sentence of paragraph (3) shall not apply to a disposition of section 1245 property to an organization described in section 511(a)(2) or 511(b)(2) if, immediately after such disposition, such organization uses such property in an unrelated trade or business (as defined in section 513).
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(B) Later change in use If any property with respect to the disposition of which gain is not recognized by reason of subparagraph (A) ceases to be used in an unrelated trade or business of the organization acquiring such property, such organization shall be treated for purposes of this section as having disposed of such property on the date of such cessation.
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(7) Timber property In determining, under subsection (a)(2), the recomputed basis of property with respect to which a deduction under section 194 was allowed for any taxable year, the taxpayer shall not take into account adjustments under section 194 to the extent such adjustments are attributable to the amortizable basis of the taxpayer acquired before the 10th taxable year preceding the taxable year in which gain with respect to the property is recognized.
Amended 1975, 1976, 2005
- 2005 Pub. L. 109-135 Pub. L. 109–135, § 402(a)(6)(A), redesignated pars. (6) to (9) as (5) to (8), respectively, and struck out heading and text of former par. (5). Text read as follows: “Under regulations prescribed by the Secretary, rules consistent with paragraphs (3) and (4) of this subsection shall apply in the case of transactions described in section 1081 (relating to exchanges in obedience to SEC orders).”
- 1976 Pub. L. 94-455 Pub. L. 94–455, § 1901(a)(140), struck out “such organization acquiring such property,” before “such organization”.
- 1975 Pub. L. 94-81 Pub. L. 94–81, § 2(a)(1), (2), inserted reference to par. (7) in par. (3), and added par. (7).
(8) Disposition of amortizable section 197 intangibles
Amended 1980, 2005
- 2005 Pub. L. 109-135 Pub. L. 109–135, § 402(a)(6)(A), redesignated pars. (6) to (9) as (5) to (8), respectively, and struck out heading and text of former par. (5). Text read as follows: “Under regulations prescribed by the Secretary, rules consistent with paragraphs (3) and (4) of this subsection shall apply in the case of transactions described in section 1081 (relating to exchanges in obedience to SEC orders).”
- 1980 Pub. L. 96-451 Pub. L. 96–451, § 301(c)(1)(C), added par. (8).
(A) In general If a taxpayer disposes of more than 1 amortizable section 197 intangible (as defined in section 197(c)) in a transaction or a series of related transactions, all such amortizable 197 intangibles shall be treated as 1 section 1245 property for purposes of this section.
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(B) Exception Subparagraph (A) shall not apply to any amortizable section 197 intangible (as so defined) with respect to which the adjusted basis exceeds the fair market value.
(c) Adjustments to basis The Secretary shall prescribe such regulations as he may deem necessary to provide for adjustments to the basis of property to reflect gain recognized under subsection (a).
Amended 1976
- 1976 Pub. L. 94-455 Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary”.
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(d) Application of section This section shall apply notwithstanding any other provision of this subtitle.
Amended 1984
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 111(e)(10), substituted “low-income housing (within the meaning of section 168(c)(2)(F))” for “15-year real property which is described in clause (i), (ii), (iii), or (iv) of section 1250(a)(1)(B)”.