The following assets in Jack's business were sold in 2012: The office equipment had a zero adjusted basis and was purchased for $8,000.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 2012 (the year of sale), Jack should report what amount of net capital gain and net ordinary income?

Question

The following assets in Jack's business were sold in 2012:  The office equipment had a zero adjusted basis and was purchased for $8,000.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 2012 (the year of sale), Jack should report what amount of net capital gain and net ordinary income?

Quizplus · Accepted Answer

The calculation of Jack's net capital gain and net ordinary income is as follows:
- Office equipment: since it had a zero adjusted basis, the entire $8,000 proceeds from its sale are treated as ordinary income.
- Automobile: Jack incurred a capital loss of $800 on the sale of the automobile, calculated as the difference between the $2,000 purchase price and the $1,200 sale price.
- ABC stock: Jack incurred a long-term capital gain of $1,400 on the sale of the ABC stock, calculated as the difference between the $3,200 sale price and the $1,800 purchase price.
Therefore, Jack's net capital gain is $1,400 - $800 = $600, and his net ordinary income is $8,000 + $0 + $0 = $8,000. 
Overall, Jack's taxable income is the sum of his net capital gain, net ordinary income, and any other income he may have earned during the year.

The Following Assets in Jack's Business Were Sold in 2012