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TITLE 26-INTERNAL REVENUE CODE property owned by the taxpayer was property de- scribed in the first part of the sentence. 1958-Subsec. (a)(1). Pub. L. 85-866 substituted "and, in the same taxable year" for "or, in the same taxable year". 1956-Subsec. (a). Act Apr. 27, 1956, § 1. substituted for the words "other than a corporation" the paren- thetical clause "(including corporations only if no shareholder directly or indirectly holds real property for sale to customers in the ordinary course of trade or business and only in the case of property described in the last sentence of subsection (b)(3))". Subsec. (b)(3). Act Apr. 27, 1956, § 2, substituted "water, sewer, or drainage facilities" for "water or sewer facilities" in subpar. (A), and Inserted at the end of said subsec. (b)(3) provision that requirements of subpars. (B) and (C) do not apply to certain specified property. EFFECTIVE DATE OF 1976 AMENDMENT Deletion of subsec. (d) by section 1901(a)(138) of Pub. L. 94-455 applicable with respect to taxable years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L. 94-455, set out as an Effective Date of 1976 Amendment note under section 2 of this title. EFFECTIVE DATE OF 1971 AMENDMENT Section 2(b) of Pub. L. 91-686 provided that: "The amendments made by subsection (a) [to subsecs. (a) and (b) of this section] shall be effective for taxable years beginning after the date of enactment of this Act [Jan. 12, 1971]." EFFECTIVE DATE OF 1958 AMENDMENT Amendment of subsec. (a)(1) by Pub. L. 85-866 appli- cable to taxable years beginning after Dec. 31, 1953, and ending after Aug. 16, 1954, see section 1(c) of Pub. L. 85-866, set out as an Effective Date of 1976 Amend- ment note under section 165 of this title. EFFECTIVE DATE OF 1956 AMENDMENT Section 3 of act Apr. 27, 1956, provided it shall apply to all taxable years beginning after Dec. 31, 1954. SALES OR EXCHANGES BY CORPORATIONS OF REAL PROPERTY HELD MORE THAN 25 YEARS Section 1 of Pub. L. 91-686 provided: "That (a) for purposes of the Internal Revenue Code of 1954 [this title] any lot or parcel of real property sold or exchanged by a corporation which would, but for this Act, be treated as property held primarily for sale to customers in the ordinary course of trade or business shall not, except to the extent provided in (b), be so treated if- "(1) no shareholder of the corporation directly or indirectly holds real property primarily for sale to customers in the ordinary course of trade or busi- ness; and "(2)(A) such lot or parcel is a part of real property (i) held for more than twenty-five years at the time of sale or exchange, and (ii) acquired before January 1, 1934, by the corporation as a result of the foreclo- sure of a lien (or liens) thereon which secured the payment of indebtedness held by one or more credi- tors who transferred one or more foreclosure bids to the corporation in exchange for all its stock (with or without other consideration), or "(B)(i) such lot or parcel is a part of additional real property acquired before January 1, 1957, by the corporation in the near vicinity of any real prop- erty to which subparagraph (A) applies, or "(ii) such lot or parcel is wholly or to some extent a part of any minor acquisition made after Decem- ber 31, 1956, by the corporation to adjust bound- aries, to fill gaps in previously acquired property, to facilitate the installation of streets, utilities, and other public facilities, or to facilitate the sale of ad- jacent property, or "(iiI) such lot or parcel is wholly or to some extent a part of a reacquisition by the corporation after De- cember 31, 1956, of property previously owned by the corporation; but only If at least 80 percent (as measured by area) of the real property sold or exchanged by the corpo- ration within the taxable year is property described in subparagraph (A); and "(3) there were no acquisitions of real property by the corporation after December 31, 1956, other than- "(A) acquisitions described in paragraph (2)(B)(i) and reacquisitions described in para- graph (2)(B)(iii), or "(B) acquisitions of real property used in a trade or business of the corporation or held for invest- ment by the corporation; and "(4) the corporation did not after December 31, 1957, sell or exchange (except in condemnation or under threat of condemnation) any residential lot or parcel on which, at the time of the sale or exchange, there existed any substantial improvements (other than improvements in existence at the time the land was acquired by the corporation) except subdivision, clearing, grubbing, and grading, building or installa- tion of water, sewer, and drainage facilities, con- struction of roads, streets, and sidewalks, and Instal. lation of utilities." In any case in which a corporation referred to in para. graphs (1), (2), (3), and (4) is a member of an affiliated group as defined in section 1504(a) of the Internal Revenue Code of 1954 [section 1504(a) of this title], such affiliated group shall, for purposes of such para- graphs, be treated as a single corporation. "(b)(l) Gain from any sale or exchange described in subsection (a) shall be deemed, for purposes of such Code, to be gain from the sale of property held pri- marily for sale to customers in the ordinary course of trade or business to the extent of 5 percent of the sell- ing price. "(2) For the purpose of computing gain under para- graph (1), expenditures incurred in connection with the sale or exchange of any lot or parcel shall neither be allowed as a deduction in computing taxable income, nor treated as reducing the amount realized on such sale or exchange; but so much of such expen- ditures as does not exceed the portion of gain deemed under paragraph (1) to be gain from the sale of prop- erty held primarily for sale to customers in the ordi- nary course of trade or business shall be so allowed as a deduction, and the remainder, if any, shall be treat- ed as reducing the amount realized on such sale or ex- change. "(c) The provisions of subsections (a) and (b) shall apply to taxable years beginning after December 31, 1957, and before January 1, 1984." CROSS REFERENCES Real property used in trade or business- As not capital asset, see section 1221 of this title. General rule, see section 1231 of this title. § 1238. Amortization in excess of depreciation Gain from the sale or exchange of property, to the extent that the adjusted basis of such property is less than its adjusted basis deter- mined without regard to section 168 (as in effect before its repeal by the Tax Reform Act of 1976), shall be considered as ordinary income. (Aug. 16, 1954, ch. 736, 68A Stat. 332; Oct. 4, 1976, Pub. L. 94-455, title XIX, §§ 1901(b)(3)(K), 1951(c)(2)(A), 90 Stat. 1793, 1840.) REFERENCES IN TEXT Tax Reform Act of 1976, referred to in text, is Pub. L. 94-455, Oct. 4, 1976, 90 Stat. 1520. For complete classification of this Act to the Code, see Tables volume, § 1238 Page 692