An individual had the following gains and losses during 2011 on property held for the long-term holding period: sale of Magenta common stock ($8,000 gain); sale of real property used in the taxpayer's business ($1,800 loss); destruction of real property used in the taxpayer's business by flood ($1,000 loss).Which of the following is correct?

Question

Quizplus · Accepted Answer

The gain from the sale of Magenta common stock is a long-term capital gain, and the loss from the sale of real property used in the taxpayer's business is a § 1231 loss. The loss from the destruction of real property used in the taxpayer's business by flood is also a § 1231 loss. However, because the losses from the sale of real property and the flood damage are both § 1231 losses, they must be netted against each other before being combined with the gain from the sale of Magenta common stock. The result is a net § 1231 loss of $800 ($1,800 loss from the sale of real property used in the taxpayer's business minus $1,000 loss from the destruction of real property used in the taxpayer's business by flood). The net § 1231 loss is then treated as an ordinary loss and can be used to offset ordinary income.

An Individual Had the Following Gains and Losses During 2011