After application of the look-back rule, net §1231 gains become capital while net §1231 losses become ordinary.

Question

Quizplus · Accepted Answer

This is correct, as per the look-back rule net §1231 gains are treated as capital gains while net §1231 losses are treated as ordinary losses. This is because Congress wants to provide a tax benefit to taxpayers who regularly engage in the sale or exchange of assets used in a trade or business, such as real estate or equipment. By treating gains as capital and losses as ordinary, taxpayers can use their losses to offset ordinary income, which is usually taxed at a higher rate than capital gains.

After Application of the Look-Back Rule, Net §1231 Gains Become