Internal Revenue Code · 26 U.S.C.

§ 724. Character of gain or loss on contributed unrealized receivables, inventory items, and capital loss 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. § 724

At a glance

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

Status: In force
Added: July 18, 1984 by Pub. L. 98–369
Last amended: August 5, 1997 by Pub. L. 105–34
Amendments: 2 dated changes in the source credit
Length: 4 subsections · 450 words · about 2 min to read
Defines: 2 terms
Cross-references: cites 3; cited by 0 Code sections and 0 other regulations

¶(a) Contributions of unrealized receivables In the case of any property which—

¶(1) was contributed to the partnership by a partner, and

¶(2) was an unrealized receivable in the hands of such partner immediately before such contribution,

any gain or loss recognized by the partnership on the disposition of such property shall be treated as ordinary income or ordinary loss, as the case may be.

¶(b) Contributions of inventory items In the case of any property which—

¶(1) was contributed to the partnership by a partner, and

¶(2) was an inventory item in the hands of such partner immediately before such contribution,

any gain or loss recognized by the partnership on the disposition of such property during the 5-year period beginning on the date of such contribution shall be treated as ordinary income or ordinary loss, as the case may be.

¶(c) Contributions of capital loss property In the case of any property which—

¶(1) was contributed by a partner to the partnership, and

¶(2) was a capital asset in the hands of such partner immediately before such contribution,

any loss recognized by the partnership on the disposition of such property during the 5-year period beginning on the date of such contribution shall be treated as a loss from the sale of a capital asset to the extent that, immediately before such contribution, the adjusted basis of such property in the hands of the partner exceeded the fair market value of such property.

¶(d) Definitions For purposes of this section—

¶(1) Unrealized receivable

The term “unrealized receivable” has the meaning given such term by section 751(c) (determined by treating any reference to the partnership as referring to the partner).

¶(2) Inventory item

The term “inventory item” has the meaning given such term by section 751(d) (determined by treating any reference to the partnership as referring to the partner and by applying section 1231 without regard to any holding period therein provided).

¶(3) Substituted basis property

¶(A) In general

If any property described in subsection (a), (b), or (c) is disposed of in a nonrecognition transaction, the tax treatment which applies to such property under such subsection shall also apply to any substituted basis property resulting from such transaction. A similar rule shall also apply in the case of a series of non-recognition transactions.

¶(B) Exception for stock in C corporation

Subparagraph (A) shall not apply to any stock in a C corporation received in an exchange described in section 351.

(Added Pub. L. 98–369, div. A, title I, § 74(a), July 18, 1984, 98 Stat. 592; amended Pub. L. 104–188, title I, § 1704(t)(63), Aug. 20, 1996, 110 Stat. 1890; Pub. L. 105–34, title X, § 1062(b)(3), Aug. 5, 1997, 111 Stat. 947.)

Terms defined here

Where the text says “the term … means”. Select a term to jump to its definition.

inventory item § 724(d)(2)
unrealized receivable § 724(d)(1)

Cross-references

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

This section cites 3 other sections

Amendment history

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

August 5, 1997Amended by Pub. L. 105–34Parts changed in 1997: (d)(2)
August 20, 1996Amended by Pub. L. 104–188Parts changed in 1996: (d)(3)(B)
July 18, 1984Added by Pub. L. 98–369

Where it sits in the Code

Nearby sections

§ 721 Nonrecognition of gain or loss on contribution
§ 722 Basis of contributing partner’s interest
§ 723 Basis of property contributed to partnership
§ 724 Character of gain or loss on contributed unrealized receivables, inventory items, and capital loss property

Official notes

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

Editorial Notes

Amendments

1997—Subsec. (d)(2). Pub. L. 105–34 substituted “section 751(d)” for “section 751(d)(2)”.

1996—Subsec. (d)(3)(B). Pub. L. 104–188 substituted “Subparagraph” for “Subparagaph”.

Effective Date of 1997 Amendment

Pub. L. 105–34, title X, § 1062(c), Aug. 5, 1997, 111 Stat. 947, provided that:

“(1) In general.— The amendments made by this section [amending this section and sections 731, 732, 735, and 751 of this title] shall apply to sales, exchanges, and distributions after the date of the enactment of this Act [Aug. 5, 1997].

“(2) Binding contracts.— The amendments made by this section shall not apply to any sale or exchange pursuant to a written binding contract in effect on June 8, 1997, and at all times thereafter before such sale or exchange.”

Effective Date

Pub. L. 98–369, div. A, title I, § 74(d)(1), July 18, 1984, 98 Stat. 594, provided that: “The amendment made by subsection (a) [enacting this section] shall apply to property contributed to a partnership after March 31, 1984, in taxable years ending after such date.”