Question

Greene owns a parking lot that yielded net income of $26,000 during the current year. The only other transactions that he had during the year were: 1) a gain of $13,000 on the sale of some Apple Corporation stock that he bought two years ago; 2) a loss of $23,000 on the sale of one storage building used for his business; 3) a gain of $4,000 on the sale of half an acre of the land used in his parking lot business. 4) a gain of 6,000 from sale of wine collection bought three years ago. All of the land used in his parking lot operations was purchased seven years ago.
His net capital gain/loss for the current year is:_______

a. Zero because all the gains offset the losses
b. A $10,000 net capital gain because the land and wine collection are capital assets
c. A $10,000 net capital loss and he deduct $3,000 to offset his ordinary income
d. None of the above statements is correct

Answer 1

Answer: A. Zero because all the gains offset the losses.

Explanation:

Based on the information given in the question, the net capital gain/loss for the current year will be:

First and foremost, we should note that the net income of $26,000 will not be added to our calculations.

Then, we then add the gain on capital assets from the options a-d given and subtract from the capital loss. This will be:

= $13,000 - ($23,000) + $4,000 + $6,000

= $13000 + $4000 + $6000 - $23000

= $23000 - $23000

= 0

Note that $23000 was subtracted because it was the only loss incurred on the capital asset from the options.