Ira sells two of his personal automobiles, a Dodge and an Edsel, during the current tax year. The Dodge cost Ira $8,000, and the Edsel's cost was $3,000 when they were acquired five years ago. The Dodge is sold for $1,000 on April 20, and the Edsel is sold for $15,000 on July 15. What is the tax treatment of these sales?
I.Both cars are capital assets.
II.The net income tax effect of these sales is zero.
III.Ira must recognize a long-term capital gain of $12,000.
IV.Ira must recognize a net long-term capital gain of $5,000.

A)Only statement I is correct.
B)Only statement II is correct.
C)Only statements I and III are correct.
D)Only statements I and IV are correct.
E)Only statements I, II, and IV correct.

Question

Ira sells two of his personal automobiles, a Dodge and an Edsel, during the current tax year. The Dodge cost Ira $8,000, and the Edsel's cost was $3,000 when they were acquired five years ago. The Dodge is sold for $1,000 on April 20, and the Edsel is sold for $15,000 on July 15. What is the tax treatment of these sales?
I.Both cars are capital assets.
II.The net income tax effect of these sales is zero.
III.Ira must recognize a long-term capital gain of $12,000.
IV.Ira must recognize a net long-term capital gain of $5,000.
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A)Only statement I is correct.
B)Only statement II is correct.
C)Only statements I and III are correct.
D)Only statements I and IV are correct.
E)Only statements I, II, and IV correct.

Quizplus · Accepted Answer

Both cars are capital assets, and Ira must recognize a long-term capital gain of $12,000 from the sale of the Edsel ($15,000 - $3,000). The loss on the Dodge ($8,000 - $1,000) is a personal loss and not deductible, so it does not affect the net income tax effect.

Ira Sells Two of His Personal Automobiles, a Dodge and an Edsel