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In: Accounting

1. Gordon Grumps is married and files separately. During 2019, he had the following capital gains...

1. Gordon Grumps is married and files separately. During 2019, he had the following capital gains and losses:

               STCL                                                                  (1,000)

               STCG                                                                  1,900

               STCL carryover from 2018                           (200)

               LTCG                                                                  600

               LTCL                                                                  (10,000)

Gordon’s taxable income is $6,000. What is Gordon’s capital loss deduction for 2019 and his carryover?

2. Sidney Southern owned a restaurant which was condemned on November 20, 2018. On January 15, 2019, he received a condemnation award of $280,000. The adjusted basis of his restaurant was $120,000, He purchased another restaurant on March 17, 2019, for $300,000.

a. What is Sidney's lowest recognized gain or loss? What is his basis in the restaurant?

b. What would be the answer to (a) if the replacement cost was $240,000?

c. What is the last possible date on which Sidney could have purchased qualified replacement property?

d. What is the answer to (c) if the restaurant had been destroyed by fire instead of being condemned?

Solutions

Expert Solution

Answer for Question 1 :-

As Per the provisions of law, Capital Losses are not allowed to be set off against any other heads of income except for capital gain heads. Also, long term capital losses can be set off against long term capital gains, whereas short term capital losses can be set off against short term capital gains and long term capital gains. The remaining unadjusted capital losses can be carry forward to future assesment years.

In the Given case, Capital losses deduction for Gordon Grumps for the year 2019 will be as follows :-

1) Short Term Capital loss of the current year of $1000 will be set of against Short Term Capital gains of the Current Year.

2) Short Term Capital loss of $200 carry Forwarded from 2018 will also be set off against Short Term Capital Gains of the current year.

3) Out of the Long Term Capital loss of $10000 of the Current Year, only Loss of $600 can be set of against the Long Term Capital Gains of the current year.

Thus, The total Capital Loss Deduction for the Current Year 2019 will be $1800 ($1000+$200+$600).

And, The Unadjusted Long term capital loss of $9,400 ($10000 - $600) will be Carry forward to future assessment years.

ekkarill92 answered 2 years ago
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