Vertical, Inc., has a 2017 net § 1231 gain of $67,000 and had a $22,000 net § 1231 loss in 2016. For 2017, 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 the above.

Question

Quizplus · Accepted Answer

Net § 1231 gain is a combination of both long-term capital gains and ordinary gains. In this case, the $67,000 net § 1231 gain is divided into a $45,000 long-term capital gain (which is taxed at a reduced rate) and a $22,000 ordinary gain. The $22,000 net § 1231 loss from 2016 is carried forward to future tax years.