Nancy owns a truck she uses personally. It cost her $18,000 two years ago. Doug offers Nancy $19,000 for the truck. What would be the tax effects if the transaction is completed this year?
I.Nancy will realize a capital gain of $1,000 due to the capital recovery concept.
II.Nancy must recognize income of $19,000 due to the all-inclusive-income concept.
III.Nancy must recognize a capital gain of $1,000 on her current-year tax return because there is no legislative provision to exclude this gain.
IV.Nancy will recognize no gain on her tax return due to lack of business purpose with the automobile.

Question

Nancy owns a truck she uses personally. It cost her $18,000 two years ago. Doug offers Nancy $19,000 for the truck. What would be the tax effects if the transaction is completed this year?
I.Nancy will realize a capital gain of $1,000 due to the capital recovery concept.
II.Nancy must recognize income of $19,000 due to the all-inclusive-income concept.
III.Nancy must recognize a capital gain of $1,000 on her current-year tax return because there is no legislative provision to exclude this gain.
IV.Nancy will recognize no gain on her tax return due to lack of business purpose with the automobile.
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Quizplus · Accepted Answer

Nancy will realize a capital gain of $1,000 due to the capital recovery concept. However, she does not have to recognize the entire $19,000 as income because the truck was used for personal purposes and not in a business. Therefore, statement II is incorrect, and statement III is only partially correct. Statement IV is also incorrect because capital gains/losses must be recognized for personal use assets as well.

Nancy Owns a Truck She Uses Personally