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Internal Revenue Code · 26 U.S.C.

§ 1255. Gain from disposition of section 126 property

In force Text current through Public Law 119-121 (October 9, 2026) release point 119-121

Official text, no changes From the Office of the Law Revision Counsel, release point 119-121 (current through Public Law 119-121 (October 9, 2026)). Compare it with the official text at uscode.house.gov (external site).

Cite as 26 U.S.C. § 1255

At a glance

Read from the text, the source credit and the official notes. Not part of the law.

Status
In force
Added
November 6, 1978 by Pub. L. 95–600
Last amended
March 23, 2018 by Pub. L. 115–141
Amendments
6 dated changes in the source credit
Length
2 subsections · 410 words · about 2 min to read
Cross-references
cites 4; cited by 1 Code section and 1 other regulation
(a) General rule
(1) Ordinary income Except as otherwise provided in this section, if section 126 property is disposed of, the lower of—
(A) the applicable percentage of the aggregate payments, with respect to such property, excluded from gross income under section 126, or
(B) the excess of—
(i) the amount realized (in the case of a sale, exchange, or involuntary conversion), or the fair market value of such section 126 property (in the case of any other disposition), over
(ii) the adjusted basis of such property,
shall be treated as ordinary income. Such gain shall be recognized notwithstanding any other provision of this subtitle, except that this section shall not apply to the extent such gain is recognized as ordinary income under any other provision of this part.
(2) Section 126 property

For purposes of this section, “section 126 property” means any property acquired, improved, or otherwise modified by the application of payments excluded from gross income under section 126.

(3) Applicable percentage

For purposes of this section, if section 126 property is disposed of less than 10 years after the date of receipt of payments excluded from gross income under section 126, the applicable percentage is 100 percent. If section 126 property is disposed of more than 10 years after such date, the applicable percentage is 100 percent reduced (but not below zero) by 10 percent for each year or part thereof in excess of 10 years such property was held after the date of receipt of the payments.

(b) Special rules Under regulations prescribed by the Secretary—
(1) rules similar to the rules applicable under section 1245 shall be applied for purposes of this section, and
(2) for purposes of sections 170(e) and 751(c), amounts treated as ordinary income under this section shall be treated in the same manner as amounts treated as ordinary income under section 1245.

(Added Pub. L. 95–600, title V, § 543(c)(1), Nov. 6, 1978, 92 Stat. 2890; amended Pub. L. 96–222, title I, § 105(a)(7)(B), (D), Apr. 1, 1980, 94 Stat. 221; Pub. L. 96–471, § 2(b)(6), Oct. 19, 1980, 94 Stat. 2254; Pub. L. 99–514, title V, § 511(d)(2)(A), title VI, § 631(e)(14), Oct. 22, 1986, 100 Stat. 2248, 2275; Pub. L. 100–647, title I, § 1005(c)(10), Nov. 10, 1988, 102 Stat. 3392; Pub. L. 108–27, title III, § 302(e)(4)(B)(ii), May 28, 2003, 117 Stat. 764; Pub. L. 115–141, div. U, title IV, § 401(a)(175), Mar. 23, 2018, 132 Stat. 1192.)

Cross-references

Computed from the citations in the text of Title 26 and 26 CFR.

This section cites 4 other sections

Cited by 1 Code section

Cited in 1 regulation not issued under it

Amendment history

From the source credit and the official notes, newest first.

  1. Amended by Pub. L. 115–141Parts changed in 2018: (b)(2)
  2. Amended by Pub. L. 108–27Parts changed in 2003: (b)(2)
  3. Amended by Pub. L. 100–647Parts changed in 1988: (b)(2)
  4. Amended by Pub. L. 99–514Parts changed in 1986: (b)(2)
  5. Amended by Pub. L. 96–471Parts changed in 1980: (a)(1)(B) (b)(2)
  6. Amended by Pub. L. 96–222
  7. Added by Pub. L. 95–600

Where it sits in the Code

  1. Subtitle A Income Taxes
  2. Chapter 1 NORMAL TAXES AND SURTAXES
  3. Subchapter P Capital Gains and Losses
  4. Part IV SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES

Nearby sections

Official notes

Show the Law Revision Counsel's notes (amendments, effective dates)

Editorial Notes

Amendments

2018—Subsec. (b)(2). Pub. L. 115–141 substituted “170(e)” for “170(e),”.

2003—Subsec. (b)(2). Pub. L. 108–27 struck out “, 341(e)(12),” after “170(e)”.

1988—Subsec. (b)(2). Pub. L. 100–647 amended Pub. L. 99–514, § 511(d)(2)(A), see 1986 Amendment note below.

1986—Subsec. (b)(2). Pub. L. 99–514, § 511(d)(2)(A), as amended by Pub. L. 100–647, struck out “163(d),” after “sections”.

Pub. L. 99–514, § 631(e)(14), struck out “453B(d)(2)” after “341(e)(12),”.

1980—Subsec. (a)(1)(B). Pub. L. 96–222, § 105(a)(7)(B), inserted following cl. (ii) provisions requiring that such gain be recognized notwithstanding any other provision of this subtitle, except that this section shall not apply to the extent such gain is recognized as ordinary income under any other provision of this part.

Subsec. (b)(2). Pub. L. 96–471 substituted “453B(d)(2)” for “453(d)(4)(B)”.

Pub. L. 96–222, § 105(a)(7)(D), inserted “for purposes of sections 163(d), 170(e), 341(e)(12), 453(d)(4)(B), and 751(c)” before “amounts treated as”.

Statutory Notes and Related Subsidiaries

Effective Date of 2003 Amendment

Amendment by Pub. L. 108–27 applicable, except as otherwise provided, to taxable years beginning after Dec. 31, 2002, see section 302(f) of Pub. L. 108–27, set out as an Effective and Termination Dates of 2003 Amendment note under section 1 of this title.

Effective Date of 1988 Amendment

Amendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title.

Effective Date of 1986 Amendment

Amendment by section 511(d)(2)(A) of Pub. L. 99–514 applicable to taxable years beginning after Dec. 31, 1986, see section 511(e) of Pub. L. 99–514, set out as a note under section 163 of this title.

Amendment by section 631(e)(14) of Pub. L. 99–514 applicable to any distribution in complete liquidation, and any sale or exchange, made by a corporation after July 31, 1986, unless such corporation is completely liquidated before Jan. 1, 1987, any transaction described in section 338 of this title for which the acquisition date occurs after Dec. 31, 1986, and any distribution, not in complete liquidation, made after Dec. 31, 1986, with exceptions and special and transitional rules, see section 633 of Pub. L. 99–514, set out as an Effective Date note under section 336 of this title.

Effective Date of 1980 Amendments

For effective date of amendment by Pub. L. 96–471, see section 6(a)(1) of Pub. L. 96–471, set out as an Effective Date note under section 453 of this title.

Amendment by Pub. L. 96–222 effective, except as otherwise provided, as if it had been included in the provisions of the Revenue Act of 1978, Pub. L. 95–600, to which such amendment relates, see section 201 of Pub. L. 96–222, set out as a note under section 32 of this title.

Effective Date

Section effective with respect to grants made under the programs after Sept. 30, 1979, see section 543(d) of Pub. L. 95–600, set out as a note under section 126 of this title.