Daniel recognizes $35,000 of Sec.1231 gains and $25,000 of Sec.1231 losses during the current year.The only other Sec.1231 item was a $4,000 loss three years ago.This year,Daniel must report

Question

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Daniel has a net Sec.1231 loss of $10,000 ($35,000 - $25,000) for the current year. This loss can be used to offset gains from other sources or carried back 3 years and forward 5 years to offset Sec. 1231 gains. However, since the only other Sec. 1231 item was a $4,000 loss from three years ago, Daniel cannot carryback any of the current year's loss. Therefore, the net Sec. 1231 loss of $10,000 can only be carried forward for up to 5 years and used to offset future Sec. 1231 gains. The correct answer is therefore B, which is the only choice that reflects this outcome.

Daniel Recognizes $35,000 of Sec