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Title 26 — Internal Revenue CodeRelease 119-73

§1257 Disposition of Converted Wetlands or Highly Erodible Croplands

Title 26 › Subtitle Subtitle A— Income Taxes › Chapter 1— NORMAL TAXES AND SURTAXES › Subchapter P— Capital Gains and Losses › Part IV— SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES › § 1257

Last updated Apr 6, 2026|Official source

Summary

If you sell converted wetland or highly erodible cropland at a profit, the gain is taxed as ordinary income instead of capital gain. A loss on the sale is treated as a long-term capital loss. The rule covers wetland converted by you (or by anyone, if you later farmed it) and highly erodible cropland you ever used for farming other than grazing. The ordinary-income label sticks with the land when it passes to someone whose tax basis carries over from yours.

Full Legal Text

Title 26, §1257

Internal Revenue Code — Source: USLM XML via OLRC

(a)Any gain on the disposition of converted wetland or highly erodible cropland 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.
(b)Any loss recognized on the disposition of converted wetland or highly erodible cropland shall be treated as a long-term capital loss.
(c)For purposes of this section—
(1)The term “converted wetland” means any converted wetland (as defined in section 1201(a)(7) of the Food Security Act of 1985 (16 U.S.C. 3801(7))) held—
(A)by the person whose activities resulted in such land being converted wetland, or
(B)by any other person who at any time used such land for farming purposes.
(2)The term “highly erodible cropland” means any highly erodible cropland (as defined in section 1201(a)(10) of the Food Security Act of 1985 (16 U.S.C. 3801(10))), if at any time the taxpayer used such land for farming purposes (other than the grazing of animals).
(3)If any land is converted wetland or highly erodible cropland in the hands of any person, such land shall be treated as converted wetland or highly erodible cropland in the hands of any other person whose adjusted basis in such land is determined (in whole or in part) by reference to the adjusted basis of such land in the hands of such person.
(d)Under regulations prescribed by the Secretary, rules similar to the rules applicable under section 1245 shall apply for purposes of subsection (a). For purposes of section 170(e) and 751(c), amounts treated as ordinary income under subsection (a) shall be treated in the same manner as amounts treated as ordinary income under section 1245.

Legislative History

Notes & Related Subsidiaries

Editorial Notes

Amendments

2018—Subsec. (c)(1). Pub. L. 115–141, § 401(a)(177), substituted “section 1201(a)(7)” for “section 1201(4)” and “16 U.S.C. 3801(7)” for “16 U.S.C. 3801(4)” in introductory provisions. Subsec. (c)(2). Pub. L. 115–141, § 401(a)(178), substituted “section 1201(a)(10)” for “section 1201(6)” and “16 U.S.C. 3801(10)” for “16 U.S.C. 3801(6)”. 2003—Subsec. (d). Pub. L. 108–27 struck out “, 341(e)(12),” after “170(e)”.

Statutory Notes and Related Subsidiaries

Effective Date

of 2003 AmendmentAmendment 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

Pub. L. 99–514, title IV, § 403(c), Oct. 22, 1986, 100 Stat. 2222, provided that: “The

Amendments

made by this section [enacting this section] shall apply to dispositions of converted wetland or highly erodible cropland (as defined in section 1257(c) of the Internal Revenue Code of 1986 as added by this section) first used for farming after March 1, 1986, in taxable years ending after that date.”

Reference

Citations & Metadata

Citation

26 U.S.C. § 1257

Title 26 — Internal Revenue Code

Last Updated

Apr 6, 2026

Release point: 119-73