Hilton,a single taxpayer in the 28% marginal tax bracket,has $16,000 of nonrecaptured net Sec.1231 losses,at the beginning of a year in which he had the following transactions:
-Sale of Asset A at a $10,000 1231 gain,all of which is unrecaptured Sec.1250 gain
-Sale of Asset B at a $13,000 1231 gain
How are the items reported this year and at which rate(s)are the amounts taxed?

Question

Quizplus · Accepted Answer

The Answer is Asset A- The entire gain from the sale of Asset A is ordinary income due to the five-year lookback.The full $10,000 gain will be taxed at 28%.
Asset B- As a result of the five-year lookback rule,$6,000 of the gain on the sale of Asset B is ordinary income ($16,000 nonrecaptured losses less $10,000 ordinary income on sale of asset A)taxed at 28%; the remaining $7,000 1231 gain is taxed at 15%.

Hilton,a Single Taxpayer in the 28% Marginal Tax Bracket,has $16,000