The following assets in Jack's business were sold in 2010: The office equipment had a zero adjusted basis and was purchased for $8,000.The automobile was purchased for $2,000 and sold for $1,200.The ABC stock was purchased for $1,800 and sold for $3,200.In 2010 (the year of sale),Jack should report what amount of net capital gain and net ordinary income?

Question

The following assets in Jack's business were sold in 2010:  The office equipment had a zero adjusted basis and was purchased for $8,000.The automobile was purchased for $2,000 and sold for $1,200.The ABC stock was purchased for $1,800 and sold for $3,200.In 2010 (the year of sale),Jack should report what amount of net capital gain and net ordinary income?

Quizplus · Accepted Answer

Firstly, we need to calculate the gain or loss for each asset sold:

- Office equipment: Since it had a zero adjusted basis, the entire $8,000 proceeds from the sale will be considered as a gain.
- Automobile: The gain on this asset is calculated as the difference between the sales price and the adjusted basis. The adjusted basis is $2,000 and the sales price is $1,200, so the loss is $800.
- ABC stock: The gain on this asset is calculated as the difference between the sales price and the adjusted basis. The adjusted basis is $1,800 and the sales price is $3,200, so the gain is $1,400.

Now, we need to classify these gains into capital gains and ordinary income:

- The gain on office equipment is considered ordinary income.
- The gain on ABC stock is considered a long-term capital gain (LTCG) because Jack held the stock for more than one year.
- The loss on automobile is considered an ordinary loss.

Thus, the total net capital gain is $1,400 and the total net ordinary income is $300. Therefore, the correct answer is C.

The Following Assets in Jack's Business Were Sold in 2010