Final answer:
Non-recaptured net section 1231 losses refer to total section 1231 losses from preceding years minus any section 1231 gains in the intervening period, which has not yet been 'recaptured' by gains.
Step-by-step explanation:
The topic pertains to the treatment of net section 1231 gain in taxation, particularly the recapture of net ordinary losses. According to the Internal Revenue Code, the non-recaptured net section 1231 losses are defined as the excess of the aggregate section 1231 losses from previous years over the aggregate section 1231 gains of the intervening years. If you have a net section 1231 gain in a given year, it is only treated as ordinary income to the extent that it is less than or equal to these accumulated, non-recaptured losses.
For example, if over the last five taxable years you had section 1231 losses totaling $50,000 and in the subsequent years section 1231 gains totaling $30,000, your non-recaptured net section 1231 losses would amount to $20,000 ($50,000 - $30,000). Then, if you have a net section 1231 gain that does not exceed this $20,000 threshold, it will be taxed as ordinary income, whereas any excess would be taxed as long-term capital gains.