Question

Lenny's Landing has a net Section 1231 gain in the current year of $12,000. In the previous five years, there are $3,000 in unrecaptured Section 1231 losses. How will Lenny's gain be taxed in the current year

Answer 1

Answer:

As the $3,000 is unrecaptured losses, it will be carried forward to this year and would be set off against the current year's capital gains.

Explanation:

The previous year unrecaptured loss of $3000 will carried forward and would be set off against the capital gains of $12,000. The gain for the year can be calculated as under:

Capital Gain for the year = Gain Before unrecaptured losses   -  Carried Forward Losses

By putting values, we have:

Capital Gain for the year = $12,000  -  $3,000 = $9,000

The resultant $9,000 would be the capital gain for the year.