Dinah owned land with a FMV of $130,000 (adjusted basis $120,000) which is investment property (a capital asset). Dinah owned a second tract of land, a 1231 asset, with a FMV of $46,000 (adjusted basis $50,000). Both tracts were acquired in 2001 and condemned by the state this year. The state paid an amount equal to FMV. If there are no other transactions involving capital assets or 1231 assets, Dinah must report on her current year return

Question

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The condemnation of the investment property results in a $10,000 capital gain ($130,000 - $120,000). The condemnation of the 1231 property results in a $4,000 loss ($46,000 - $50,000). The net Sec. 1231 gain is $6,000 ($10,000 - $4,000), which is treated as a net capital gain.

Dinah Owned Land with a FMV of $130,000 (Adjusted Basis