Question

Don, the owner of Watt Inc. has a building that he bought for $2,500,000. It has depreciated by $350,000. Now Don wants to sell it for $400,000. He has heard about ordinary losses. He has heard about capital losses. Unfortunately, Don does not know the difference between these two types of losses. To add to the confusion, he doesn't know what the difference is between a realized and a recognized loss. How would you explain these concepts to Don? What type of advice would you offer to him and did any changes brought by the Tax Cuts and Jobs Act impact your advice?

Answer 1

Capital Gain:

Capital gain arises when a capital asset sold at a higher price than its acquiring cost. When the selling price is less than the acquiring cost then it will be capital loss.

1. Capital losses and ordinary losses receive different tax treatment. Capital loss results when you sell a capital asset, such as stocks and bonds, for less than your cost. Ordinary loss occurs from the normal operations of a business when expenses exceed income.

2.A loss is realized immediately after you sell an asset for a loss.

Loss is recognized when the loss may be applied against your taxes. Most sales create a realized and recognized loss at the same time, immediately after the sale. The IRS delays the tax impact of certain transactions.

In the above example

Now Don wants to sell it for $400,000.

2,100,000 is Capital Loss

And this all is included in PPP IFRS 16 and Financial instruments IFRS 9