Carlota sells her personal automobile for $1,000. The car cost her $10,000 nine years ago. What are the tax effects of the current sale?
I.Carlota realizes a transaction loss of $9,000 due to the capital recovery concept.
II.Carlota realizes income of $1,000 due to the all-inclusive-income concept.

Question

Carlota sells her personal automobile for $1,000. The car cost her $10,000 nine years ago. What are the tax effects of the current sale?
I.Carlota realizes a transaction loss of $9,000 due to the capital recovery concept.
II.Carlota realizes income of $1,000 due to the all-inclusive-income concept.
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Quizplus · Accepted Answer

Statement I is correct because Carlota sold her car for much less than what she initially paid for it, resulting in a capital loss. Statement II is incorrect because selling a personal automobile is generally not considered taxable income under the all-inclusive-income concept.

Carlota Sells Her Personal Automobile for $1,000