Question $22$ of $30.$

Which statement is true under the rules for nonrecaptured section $1231$ losses?

Section $1231$ gain is treated as ordinary income until losses from the five prior years are recaptured.

Section $1231$ losses are treated as ordinary losses until gains from the five prior years are recaptured.

Section $1231$ gain is recorded by year and retained for five years to offset section $1231$ losses incurred over these years.

Section $1231$ losses are treated as ordinary losses for five years.