Vertical, Inc., has a 2019 net § 1231 gain of $67,000 and had a $22,000 net § 1231 loss in 2018.For 2019, Vertical's net § 1231 gain is treated as:
A)$45,000 long-term capital gain and $22,000 ordinary loss.
B)$67,000 ordinary gain.
C)$45,000 long-term capital gain and $22,000 ordinary gain.
D)$67,000 capital gain.
E)None of these.

Question

Quizplus · Accepted Answer

Per Section 1231 of the Internal Revenue Code, gains and losses from the sale or exchange of certain property, such as depreciable assets or real estate used in a trade or business, are classified as either ordinary or capital depending on the holding period. If the net § 1231 amount for the year is a gain, it is treated as a long-term capital gain to the extent of any net § 1231 loss from the previous five years. Therefore, in this scenario, the $22,000 net § 1231 loss from 2018 reduces the $67,000 net § 1231 gain in 2019 to $45,000 long-term capital gain and $22,000 ordinary gain.