Question

Item15 0.3 points eBookPrintReferences Check my work Check My Work button is now enabledItem 15Item 15 0.3 points Corporation Q, a calendar year taxpayer, has incurred the following Section 1231 net gains and losses since its formation in 2015. 2015 2016 2017 Section 1231 gains $ 14,800 $ 5,700 0 Section 1231 losses (13,000 ) (9,000 ) $ (3,100 ) Net gain or (loss) $ 1,800 $ (3,300 ) $ (3,100 ) In 2018, Corporation Q sold only one asset and recognized a $4,000 Section 1231 gain. How much of this gain is treated as capital gain, and how much is ordinary

Answer 1

Answer:

$4,000 is treated as a capital gain and then reduced by the un-offset net losses in 2016 ($300) and 2017 ($100) to arrive at net capital gain of $3,600 ($4,000 - 300 - 100).   $0 of the amount is treated as an ordinary income.

Explanation:

Section 1231 gain arises when an asset (real property or depreciable business property) is sold for more than its current tax basis.  The gain is regarded as a capital gain and taxed at the lower capital gain rates and not as ordinary income.

Section 1231 property are assets used in trade or business and held by the Taxpayer for more than one year. A gain on the sale of Section 1231 business property is treated as a long-term capital gain.