Donza Company has unrecaptured Section 1231 losses from the two previous years totaling $25,000 and a $32,000 Section 1231 gain in the current year.Based on this information, all of the following statements concerning Donza's taxable income for the current year are correct except:
A)Taxable ordinary income is $25,000
B)Taxable capital gain is $7,000
C)The amount taxable as ordinary income is the lesser of the unrecaptured losses or the current Section 1231 gain
D)Unrecaptured Section 1231 losses are taxable as capital gain

Question

Quizplus · Accepted Answer

Unrecaptured Section 1231 losses are not taxable as capital gains; instead, they are used to offset current year Section 1231 gains, recharacterizing them as ordinary income to the extent of the previous losses.

Donza Company Has Unrecaptured Section 1231 Losses from the Two