Question

Ashburn reported a $105,000 net §1231 gain in year 6. Assuming Ashburn reported $60,000 of nonrecaptured §1231 losses during years 1-5, what amount of Ashburn's net §1231 gain for year 6, if any, is treated as ordinary income?
a. $0.
b. $45,000.
c. $60,000.
d. $105,000.
e. None of the choices are correct.

Answer 1

Answer:

C) $60,000

Explanation:

According to the §1231 look-back rule, any net §1231 gain of the year must be recaptured as current income to the extent of covering net §1231 losses that may have been deducted during the last 5 years.

In this case Ashburn must recapture $60,000 as ordinary income to match the $60,000 it had deducted as ordinary loss during the previous 5 years.