Question

In: Accounting

In the current year, Alan reported a $104,950 net §1231 gain and a $4,000 net capital...

In the current year, Alan reported a $104,950 net §1231 gain and a $4,000 net capital loss. Assuming Alan reported $54,000 of nonrecaptured §1231 losses during the prior 5 years, what amount of Alan's net §1231 gain for the current year, if any, is treated as ordinary income?

Multiple Choice

  • $50,950.

  • $104,950.

  • $54,000.

  • None of the choices are correct.

  • $0.

Solutions

Expert Solution

Per IRS, if a taxpayer has Section 1231 losses in the previous five years, the loss can be set off against the current year Section 1231 gain. The amount of such loss that is applied against the current year Section 1231 gain is reported as Ordinary Income. The remaining gain after adjusting for the losses is the Long term capital gain.

Hence, based on the above observation, Alan would recognize ordinary income upto the Non recaptured section 1231 losses of the prior 5 years. Hence, the correct answer is Option C - $54,000.

Option A is incorrect based on the above calculation.

Option B is incorrect as the total $104,950 is the net section 1231 gain. However, ordinary income is recognized only upto the maximum nonrecaptured losses of the preceding 5 years.

Option D is incorrect as we have the answer at Option C.

Option E is incorrect as Alan would be eligible to treat the nonrecaptured losses of the preceding 5 years as "ordinary income" during the current year.

Please let me know if you have any questions via comments and all the best :)

ekkarill92 answered 1 year ago
Next > < Previous

Related Solutions

In the current year, Alan reported a $104,925 net §1231 gain and a $4,000 net capital...
In the current year, Alan reported a $104,925 net §1231 gain and a $4,000 net capital loss. Assuming Alan reported $53,500 of nonrecaptured §1231 losses during the prior 5 years, what amount of Alan's net §1231 gain for the current year, if any, is treated as ordinary income?
34) During the current year, LaVone recognizes a $30,000 Sec. 1231 gain on sale of land...
34) During the current year, LaVone recognizes a $30,000 Sec. 1231 gain on sale of land and a $18,000 Sec. 1231 loss on the sale of land. Prior to this, LaVone's only Sec. 1231 item was a $14,000 loss six years ago. LaVone must report a A) $12,000 net LTCG. B) $12,000 ordinary income. C) $14,000 ordinary income. D) $10,000 ordinary income and $2,000 net LTCG. 35) Sec. 1231 property will generally have all the following characteristics except A) real...
Bob has capital losses of $4,000 that exceed his capital gains in the current year. Of...
Bob has capital losses of $4,000 that exceed his capital gains in the current year. Of this amount, $1,200 is a short-term capital loss and $2,800 is a long-term capital loss. What is the amount and character of the capital loss carryforward? a. It will be a $1,000 capital loss pro rated between short-term ($300) and long-term ($700) based on the total amount of the excess capital loss. b. It will be a $1,000 long-term capital loss because Bob must...
Negasonic Teenage Warhead has a $40,000 § 1245 gain, a $35,000 § 1231 gain, a $33,000...
Negasonic Teenage Warhead has a $40,000 § 1245 gain, a $35,000 § 1231 gain, a $33,000 § 1231 loss, a $3,000 § 1231 lookback loss, and a $15,000 long-term capital gain. After conducting the appropriate netting process (please show your work), how much gain or loss will Negasonic report and what is the character of that gain or loss?
Question #28: Determing Net Capital Gain or Loss During the year, Tamara had capital transactions resulting...
Question #28: Determing Net Capital Gain or Loss During the year, Tamara had capital transactions resulting in gains (losses) as follows: Sold stock in ABC Company (acquired two years ago) -$1,500 Sold collectible coins (held for more than one year) $2,000 Sold stock in XYZ Company (acquired six months ago) -$4,100 Sold stock in LMN Company (acquired three years ago) $500 Determine Tamara's net capital gain or loss as a result of these transactions. Step #1 - Determine Long-Term Capital...
The net income reported on the income statement of CamilloX Inc. for the current year was...
The net income reported on the income statement of CamilloX Inc. for the current year was $150,000. Depreciation recorded on equipment and building amounted to $45,000 for the year.  Balances of the current asset and current liability accounts at the beginning and end of the year are as follows: Account End of Year Beginning of Year Cash 42,875 36,250 Trade Receivables (net) 147,500 137,500 Inventories 109,375 93,750 Prepaid Expenses 9,250 11,875 Accounts Payable 57,000 40,000 Salaries Payable 7,625 10,625 Dividends Payable...
Required: Discuss the Net Capital Gain for Simon for the 2019-20 tax year. In your answer,...
Required: Discuss the Net Capital Gain for Simon for the 2019-20 tax year. In your answer, ignore any possible application of the small business concessions. Where appropriate support your answer with legislative and case authority. Simon bought his first house in April 2015 and paid $600,000 for it, as well as paying stamp duty in the amount of $30,000. After living in it for 2 years, he commenced renting it out in April 2017. At the time, its market value...
Required: Discuss the Net Capital Gain for Simon for the 2019-20 tax year. In your answer,...
Required: Discuss the Net Capital Gain for Simon for the 2019-20 tax year. In your answer, ignore any possible application of the small business concessions. Where appropriate support your answer with legislative and case authority. Simon bought his first house in April 2015 and paid $600,000 for it, as well as paying stamp duty in the amount of $30,000. After living in it for 2 years, he commenced renting it out in April 2017. At the time, its market value...
The net income reported on the income statement for the current year was $121,900. Depreciation recorded...
The net income reported on the income statement for the current year was $121,900. Depreciation recorded on store equipment for the year amounted to $20,100. Balances of the current asset and current liability accounts at the beginning and end of the year are as follows: End of Year Beginning of Year Cash $47,050 $42,820 Accounts receivable (net) 33,730 31,640 Inventories 46,060 48,170 Prepaid expenses 5,180 4,070 Accounts payable (merchandise creditors) 44,090 40,510 Wages payable 24,090 26,460 a. Prepare the “Cash...
An understatement of reported net income for the current year would result from a. an overstatement...
An understatement of reported net income for the current year would result from a. an overstatement of ending inventory in the previous period. b. an overstatement of ending inventory in the current period. c. failure to record accrued payroll liabilities. d. failure to record expiration of prepaid insurance.
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT