Davidson Corporation has the following gains and losses from Section 1231 property during 2013:
$\begin{array}{lr}
\text {Casualy losses } &\$(6,000) \
\text {Casualty gains } &7,000 \
\text { Section 1231 gains } &6,000 \
\text { Section 1231 losses } &(9,000)
\end{array}$
No net Section 1231 losses have been deducted as ordinary losses in prior years.How much of the 2013 Section 1231 gains and losses are recognized as long-term capital gains?
A)$ - 0 -
B)$ 1,000
C)$ 2,000
D)$ 3,000
E)$ 6,000

Question

Davidson Corporation has the following gains and losses from Section 1231 property during 2013:
$\begin{array}{lr}
\text {Casualy losses  } &\$(6,000) \
\text {Casualty gains  } &7,000 \
\text { Section 1231 gains } &6,000 \
\text { Section 1231 losses } &(9,000)
\end{array}$
No net Section 1231 losses have been deducted as ordinary losses in prior years.How much of the 2013 Section 1231 gains and losses are recognized as long-term capital gains?
A)$ - 0 -
B)$ 1,000
C)$ 2,000
D)$ 3,000
E)$ 6,000

Quizplus · Accepted Answer

The casualty gains and losses are netted first. Since the casualty gains exceed the casualty losses, the $1,000 net gain is treated as a Section 1231 gain. The Section 1231 gains and losses are then netted. Since the Section 1231 losses exceed the Section 1231 gains, the $3,000 net loss is recognized as an ordinary loss. The remaining $1,000 Section 1231 gain is recognized as a long-term capital gain.

Davidson Corporation Has the Following Gains and Losses from Section