Question

In: Accounting

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?

Solutions

Expert Solution

Particulars Amount
1231 gain              35,000
1231 loss            (33,000)
1245 gain              40,000
Net 1231 gain              42,000
Less look back recapture               (3,000)
Net 1231 gain for the year              39,000

Ordinary income due to look back rule is $3,000.

Particulars Amount
Net 1231 gain for the year              39,000
Add Long-term capital gain              15,000
net long-term capital gain              54,000

Note: first 1231 gains and losses are netted together, to which 1245 gains are added. From that 1231 look back amount is treated as ordinary income and the balance as long-term capital gain.


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