Question

Required information Problem 3-54 (LO 3-5) [The following information applies to the questions displayed below.] Part 2 of 2 Hans runs a sole proprietorship. Hans has reported the following net $1231 gains and losses since he began business. Net $1231 gains shown are before the look-back rule. (Leave no answer blank. Enter zero if applicable.) points Net $1231 Gains/(Losses) $ (65,000) 15,000 Year Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 (current year) Print 10,000 50,000 Problem 3-54 Part-b b. Assume that the $50,000 net $1231 gain occurs in year 6 instead of year 7. What amount of the gain would be treated as ordinary income in year 6? Ordinary income $ 40,000

Answer 1

B. ​​​​​​ After applying the S1231 five year look back rule , $40,000 is ordinary income and $10,000 is long-term capital gain.

Year	Net S1231 Gain(loss)	Recaptured/nonrecaptured S1231 losses	Notes	Ordinary	LTCG
Year 1	($65,000)	$0 ($65,000)	Loss is ordinary Non recaptured losses	($65,000)
Year 2	$15,000	$15,000 ($50,000)	Gain is ordinary Non recaptured losses	$15,000
Year 3	$0	$0 ($50,000)	Nonrecaptured losses
Year 4	$0	$0 ($50,000)	Nonrecaptured losses
Year 5	$10,000	$10,000 ($40,000)	Gain is ordinary Nonrecaptured losses	$10,000
Year 6	$50,000	$40,000 $10,000	Gain is ordinary No nonrecaptured losses	$40,000	$10,000

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