# § 1255. Gain from disposition of section 126 property
**(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—
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.
**(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,
**(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.
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**Source Credit**: (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.)
## Editorial Notes
### Amendments
2018—Subsec. (b)(2). substituted “170(e)” for “170(e),”.
2003—Subsec. (b)(2). struck out “, 341(e)(12),” after “170(e)”.
1988—Subsec. (b)(2). amended , see 1986 Amendment note below.
1986—Subsec. (b)(2). , as amended by , struck out “163(d),” after “sections”.
, struck out “453B(d)(2)” after “341(e)(12),”.
1980—Subsec. (a)(1)(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). substituted “453B(d)(2)” for “453(d)(4)(B)”.
, 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 applicable, except as otherwise provided, to taxable years beginning after , see , set out as an Effective and Termination Dates of 2003 Amendment note under .
### Effective Date of 1988 Amendment
Amendment by effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, , to which such amendment relates, see , set out as a note under .
### Effective Date of 1986 Amendment
Amendment by applicable to taxable years beginning after , see , set out as a note under .
Amendment by applicable to any distribution in complete liquidation, and any sale or exchange, made by a corporation after , unless such corporation is completely liquidated before , any transaction described in for which the acquisition date occurs after , and any distribution, not in complete liquidation, made after , with exceptions and special and transitional rules, see , set out as an Effective Date note under .
### Effective Date of 1980 Amendments
For effective date of amendment by , see , set out as an Effective Date note under .
Amendment by effective, except as otherwise provided, as if it had been included in the provisions of the Revenue Act of 1978, , to which such amendment relates, see , set out as a note under .
### Effective Date
Section effective with respect to grants made under the programs after , see , set out as a note under .