Stan sells a piece of land he used in his auto repair business at a gain of $9,000 in 2017.In addition,Stan sells equipment he purchased in 2012 for $8,000.He paid $20,000 for the equipment that had an adjusted basis of $12,000 when it was sold.He also sells some stock in 2017 at a loss of $11,000.No losses on the disposition of assets were recognized in prior years.The effect of these transactions on Stan's 2017 taxable income is:

Question

Quizplus · Accepted Answer

The gain on the sale of land is a taxable capital gain, but the loss on the sale of the stock can be used to offset the gain.

So, Stan's taxable income will increase by $9,000 (gain on land) and decrease by $11,000 (loss on stock), resulting in a net decrease of $2,000.

Regarding the sale of equipment, the adjusted basis ($12,000) is less than the selling price ($20,000), so there is a taxable gain of $8,000. However, because the equipment was held for more than one year, this gain is a long-term capital gain.

Since there were no losses recognized in prior years, there is no long-term capital loss carryback, and the effect on 2017 taxable income is a decrease of $3,000 ($2,000 net decrease from the stock sale and $1,000 increase from the equipment sale).

Stan Sells a Piece of Land He Used in His