The following assets in Jack's business were sold in 2018: $$\begin{array} { l l l }
\text { Asset } & \underline { \text { Holding Period } } & \underline { \text { Gain/(Loss) } } \
\text { Office equipment } & 6 \text { years } & \$ 1,100 \
\text { Automobile } & 8 \text { months } & ( \$ 800 ) \
\text { ABC stock (capital asset) } & 2 \text { years } & \$ 1,400
\end{array}$$ Office equipment, purchased for $8,000, had a zero adjusted basis.The automobile was purchased for $2,000 and sold for $1,200.The ABC stock was purchased for $1,800 and sold for $3,200.In 2018 (the year of sale), Jack should report what amount of net capital gain and net ordinary income?
A)$1,700 LTCG.
B)$600 LTCG and $300 ordinary gain.
C)$1,400 LTCG and $300 ordinary gain.
D)$2,500 LTCG and $800 ordinary loss.
E)None of these.

Question

The following assets in Jack's business were sold in 2018: $$\begin{array} { l l l } 
\text { Asset } & \underline { \text { Holding Period } } & \underline { \text { Gain/(Loss) } } \
\text { Office equipment } & 6 \text { years } & \$ 1,100 \
\text { Automobile } & 8 \text { months } & ( \$ 800 ) \
\text { ABC stock (capital asset) } & 2 \text { years } & \$ 1,400
\end{array}$$ Office equipment, purchased for $8,000, had a zero adjusted basis.The automobile was purchased for $2,000 and sold for $1,200.The ABC stock was purchased for $1,800 and sold for $3,200.In 2018 (the year of sale), Jack should report what amount of net capital gain and net ordinary income?
A)$1,700 LTCG.
B)$600 LTCG and $300 ordinary gain.
C)$1,400 LTCG and $300 ordinary gain.
D)$2,500 LTCG and $800 ordinary loss.
E)None of these.

Quizplus · Accepted Answer

To calculate the net capital gain and net ordinary income, we need to first calculate the gain or loss on each asset and then classify it as either capital or ordinary.

1) Office equipment: The adjusted basis of the office equipment is zero, so the entire sale price of $8,000 is treated as a capital gain. Therefore, the net capital gain is $8,000.

2) Automobile: The automobile was sold at a loss of $800 ($1,200 - $2,000). Since this is a personal-use asset, it is not classified as a capital asset, and the entire loss is treated as an ordinary loss. Therefore, the net ordinary income is -$800.

3) ABC stock: The ABC stock was sold at a gain of $1,400 ($3,200 - $1,800). This is a capital asset, so the gain is classified as a long-term capital gain (LTCG). Therefore, the net capital gain is $1,400.

Adding up the net capital gain and net ordinary income, we get:

$8,000 (net capital gain) + (-$800) (net ordinary loss) + $1,400 (net capital gain) = $9,600 - $800 = $8,800

Therefore, the correct answer is choice C: $1,400 in net capital gain and $300 in net ordinary gain.

The Following Assets in Jack's Business Were Sold in 2018