Question

explain pls!

_6. Gary sold business equipment in the current year for a $50,000 net gain (after taking into account any depreciation recapture). The equipment was originally purchased two years ago and was classified as a Section 1231 asset. This was the only asset sale for the year. Five years ago, Gary had a $60,000 net Section 1231 loss but he has not had any Section 1231 transactions since then. For the current year, Gary's net Section 1231 gain is treated as a. $50,000 long-term capital gain b. $40,000 long-term capital gain and $10,000 ordinary gain c. $10,000 long-term capital gain and $40,000 ordinary gain d. $50,000 ordinary gain _7. An individual with gross income of $78,000 had the following gains and losses from capital transactions during the current year: Loss of $11,000 on the sale of principal residence held for five years Gain of $5,000 from the sale of securities held for four years Loss of $9,000 on the sale of municipal bonds held for seven months Loss of $4,000 on the sale of a painting held for investment for fifteen years What amount of the capital loss should the individual carry forward? a. $3,000 b. $5,000 c. $8,000 d. $16,000 e. $19,000

Answer 1

6 ) Option D

As per Sec 1231 of Internal Revenue Code, if a gain is claimed within next 5 years of claiming loss form Sec 1231 property, and that gain is less than the loss claimed, in that case, that gain will be treated as ordinary income., not a capital gain.

So in this case, Same is the situation, so 50,000 will be treated as ordinary gain.

7) Option C

Any loss form sale of personal property will not be qualified for the carry forward of capital loss. So loss of $ 11000 on sale of residence will not be considered.

Gains are settled from losses.

So net loss= 9000+4000-5000= $ 8000 will be carry forwarded.