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As of my last knowledge update in January 2022, Section 1231 gains are generally included in Qualified Business Income (QBI) for the purpose of calculating the QBI deduction. Section 1231 of the Internal Revenue Code addresses the tax treatment of gains and losses on the sale or exchange of certain property used in a trade or business.
Here’s how Section 1231 gains are typically treated in the context of QBI
Net Section 1231 Gain
Section 1231 gains and losses are netted to determine the net Section 1231 gain or loss for the tax year. Netting involves offsetting Section 1231 gains against Section 1231 losses.
Treatment as Ordinary Income
If there is a net Section 1231 gain for the tax year, it is generally treated as ordinary income. This ordinary income treatment applies to the extent that there are prior Section 1231 losses from the preceding five tax years (“recapture” of losses).
Inclusion in QBI
The ordinary income from a net Section 1231 gain is typically included in Qualified Business Income (QBI) when calculating the QBI deduction for eligible pass-through entities.
It’s important to note that tax laws and regulations can change, and specific circumstances may vary. For the most accurate and up-to-date information regarding the treatment of Section 1231 gains in QBI calculations, individuals and businesses should consult with a qualified tax professional or advisor. Additionally, staying informed about any updates or changes to tax laws is crucial for accurate tax planning and compliance.
Stay informed, stay compliant.
