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Fixed Assets and UltraTax CS 2023 help is now on Help and Support. We're still moving articles, but you can find most content for the 2023 tax year there. Continue using the Help & How-To Center for tax years 2022 and older.

Question

Why are the net 1231 losses reported as a carryover on the Carryover Report when I report these amounts on the return?

Answer

The amount of net 1231 losses on the carryover report is the nonrecaptured section 1231 Losses. Per Form 4797, line 8 instructions, part or all of the client's section 1231 gains on line 7 may be taxed as ordinary income instead of receiving long-term capital gain treatment. UltraTax CS treats these net section 1231 gains as ordinary income to the extent of nonrecaptured section 1231 losses. The nonrecaptured losses are net section 1231 losses deducted during the five preceding tax years that have not yet been applied against any net section 1231 gain for determining how much gain is ordinary income under these rules. Current-year net 1231 losses have not been applied against net 1231 gains. The net 1231 losses are reported as nonrecaptured net section 1231 losses from prior years when you report a net 1231 gain on Form 4797 within five years of the net 1231 loss. UltraTax CS proformas the amount to the following year's tax return. If there are current-year net section 1231 losses generated, these amounts are needed to properly report future-year net section 1231 gains.

Related topic: Carryover reports FAQs (1040)

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