In 2020, Mary recognized a $45,000 gain on the sale of Section 1231 property. Over the previous five-year period, Mary recognized the following net Section 1231 gains and (losses):2019 ($28,000)2018 $16,0002017 ($30,000)Mary's 2020 gain is characterized as

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Section 1231 gains and losses are netted against each other over a five-year lookback period, excluding the current year. Mary's previous net Section 1231 losses total $42,000 ($28,000 + $30,000 - $16,000). Therefore, $42,000 of her $45,000 gain in 2020 is treated as ordinary income to recapture the prior net losses, and the remaining $3,000 is treated as capital gain.

In 2020, Mary Recognized a $45,000 Gain on the Sale