Final answer:
Section 1231 lookback losses can convert § 1250 gain into ordinary income.
Step-by-step explanation:
True.
Section 1231 lookback losses can convert some or all of section 1250 gain into ordinary income. Section 1231 involves the tax treatment of gains or losses from the sale or exchange of certain business properties, such as real estate or equipment. Section 1250 refers specifically to gain from the sale of depreciable real estate. When a taxpayer has a net loss from section 1231 activities in one year, this loss can be carried back to the previous five years to offset any section 1250 gain.
For example, let's say a taxpayer sells a piece of depreciable real estate and has a gain of $10,000. However, in the same year, they also have a net loss of $5,000 from section 1231 activities. The $5,000 loss can be used to reduce the $10,000 gain, resulting in $5,000 of the gain being treated as ordinary income.