What is Not Section 1231 Property?

Real or Depreciable Property Held One Year or Less

If you sell real or depreciable business property held one year or less, the tax rules of section 1231 do not apply. Treat gains and losses on the sale or exchange of real or depreciable property used in a trade or business and held one year or less as ordinary gain or loss.

Inventory

A sale, exchange, or involuntary conversion of property held mainly for sale to customers or used in the manufacture of products to be sold to customers, is not section 1231 property.

Inventory held for use in the operations of a business, such as office and shipping supplies are not section 1231 property.

Gain or loss on inventory included in the sale of your business is treated as ordinary gain or loss.

Copyrights

The sale of a copyright, a literary, musical, or artistic composition, or similar property is not a section 1231 property if:

  • Your personal efforts created the property, or if
  • You acquired the property in a way that entitled you to the basis of the previous owner whose personal efforts created it.
    • For example, if you receive the property as a gift.

U.S. Government Publications

  • U.S. Government publications that you received from the Government other than by purchase at the normal sales price, are not section 1231 property.

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