Vertigo, Inc., has a 2012 net § 1231 loss of $64,000 and had a $32,000 net § 1231 gain in 2011.For 2012, Vertigo's net § 1231 loss is treated as:
A)Ordinary loss.
B)Ordinary gain.
C)Capital loss.
D)Capital gain.
E)None of the above.

Question

Quizplus · Accepted Answer

A net § 1231 loss is treated as an ordinary loss, allowing the taxpayer to deduct it against ordinary income. Therefore, in this case, Vertigo's 2012 net § 1231 loss of $64,000 can be deducted against ordinary income in 2012. The fact that they had a net § 1231 gain of $32,000 in 2011 does not affect the treatment of the current year's loss.