Trojan Inc.was incorporated in 2013.In 2013,it had no Section 1231 transactions.In 2014,Trojan had a net Section 1231 loss of $35,000.In 2015,Trojan had a Net Section 1231 gain of $10,000.In 2016 Trojan has a $50,000 net Section 1231 gain.Trojan should treat the 2016 gain as

Question

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Every net Section 1231 gain is treated as a long-term capital gain. If the taxpayer has a net Section 1231 loss, it is treated as an ordinary loss.

In this case, Trojan had no Section 1231 transactions in 2013. In 2014, Trojan had a net Section 1231 loss of $35,000. This loss is treated as an ordinary loss.

In 2015, Trojan had a net Section 1231 gain of $10,000. This gain is treated as a long-term capital gain.

In 2016, Trojan had a net Section 1231 gain of $50,000. This gain is also treated as a long-term capital gain.

Therefore, Trojan should treat the 2016 gain as an ordinary gain of $25,000 and a long-term capital gain of $25,000.