Limitation on amount subject to tax. For purposes of paragraph (h)(1) of this section, the taxable income limitation under § 1.1374–2(a)(2) is equal to the amount by which the S corporation’s net recognized built-in gain would have been increased from the year of the sale to the earlier of the year the in- come is reported under the installment method or the last year of the recogni- tion period, assuming all income from the sale had been reported in the year of the sale and all provisions of section 1374 applied. For purposes of the pre- ceding sentence, if the corporation sells the asset before the recognition period, the income from the sale that is not reported before the recognition pe- riod is treated as having been reported in the first year of the recognition pe- riod.
