Question

On May 1, 2018, Kelalani purchased land for $88,000 for use in her business. She sold it on May 1, 2019, for $82,000. If there are no other sales of business or trade property, how is this loss treated for tax purposes on Kelalani's return?
1. $6,000 Section 1231 loss.
2. $6,000 ordinary loss.
3. $6,000 short-term capital loss.
4. $6,000 long-term capital loss.

Answer 1

Answer: $6000 short term Capital loss

Explanation:

From the question, we are informed that on May 1, 2018, Kelalani purchased land for $88,000 for use in her business and that she sold it on May 1, 2019, for $82,000.

We are further told that there are no other sales of business or trade property. Based on this scenario, the loss treated for tax purposes on Kelalani's return will be a short term capital loss of $6000($88,000 - $82,000). It is a short term capital loss because the loss is for a period of a year or less.