Question

Bob owned a company that creates and sells classroom furniture for educational facilities. In 2017 Bob has decided to retire and sold of the entire operation to several different buyers. Bob had the following 1231 gains and losses during 2017: Sold the manufacturing facility and warehouse used for his business on 3 acres land he owned and used for 10 years for a gain of $5,000 Sold office furniture and equipment for a loss of $3,000 Sold Commercial truck used for delivery of goods for a loss of $6,000 Sold Machinery used in the production of goods for a gain of $1,000 Bob has $500 in nonrecaptured §1231 losses from 2014 and $200 in nonrecaptured §1231 losses from 2010.

What is Bob’s total §1231 gain or loss for 2017?

Answer 1

As the question states all the transactions are Sec 1231 losses or gains we need not verify whether they fall under sec 1231.

So the net gain or loss under sec 1231 is computed as follows:

1. Gain from sale of manufacturing facility and warehouse = $5000

2. Loss from sale of office furniture and equipment = $3000

3. Loss from sale of Commercial truck = $6000

4. Gain from sale of Machinery = $1000

The net gain/loss from Sec 1231 = 5000-3000-6000+1000= Net loss of $3000.

Points for consideration: Treatment of sec 1231 looses or gains depend on the net loss or gain from sec 1231.

A)If we have net sec1231 gain then it is ordinary income upto the amount of our nonrecaptured sec 1231 losses from previous years. The rest if any can be treated as long term gain.

B) If we have net sec 1231 losses it is treated as ordinary loss without any adjustment to nonrecaptured losses from previous years.

In this question we have a net sec 1231 loss of $3000. So as per above provisions the net loss of $3000 is treated as ordinary loss.

Note:The nonrecaptured sec 1231 losses from previous years cannot be adjusted against current year loss.

Conclusion: Bob’s total §1231 gain or loss for 2017 is loss of $3000.