Verdum,Inc.,has a 2011 net § 1231 gain of $57,000 and had a $12,000 net § 1231 loss in 2010.For 2011,Verdum's net § 1231 gain is treated as:

Question

Quizplus · Accepted Answer

When a taxpayer has a net § 1231 gain, it can be characterized as either an ordinary gain or a long-term capital gain. However, if the taxpayer has a net § 1231 loss, it is always treated as an ordinary loss.

In this case, Verdum had a net § 1231 loss of $12,000 in 2010, which was treated as an ordinary loss. In 2011, they had a net § 1231 gain of $57,000. Since the prior year loss was an ordinary loss, the current year gain must first be offset against that loss. This leaves a net § 1231 gain of $45,000 that can be characterized as a long-term capital gain.

Therefore, the best choice is C, which represents $45,000 of long-term capital gain and $12,000 of ordinary gain.