An individual had the following gains and losses during 2018 on property held for the long-term holding period: sale of Orange common stock ($8,000 gain)? sale of real property used in the taxpayer's business ($1,800 loss)? destruction of real property used in the taxpayer's business by fire ($1,000 loss). Which of the following statements is correct?
A) The fire loss would reduce the real property sale loss.
B) The fire loss would reduce the stock sale gain.
C) The sale of real property loss would be netted against the stock sale gain.
D) The sale of real property is a § 1231 loss.
E) None of the above.

Question

Quizplus · Accepted Answer

The sale of real property used in the taxpayer's business is classified as a § 1231 loss, which is a special classification of losses for gains and losses on depreciable property used in a trade or business. The fire loss is also a § 1231 loss, which means that it can be netted against the real property sale loss to determine whether there is a net gain or loss on § 1231 property. The gain on the sale of Orange common stock is not related to the real property losses and cannot be used to offset them. Therefore, option D is the correct answer.

An Individual Had the Following Gains and Losses During 2018