Question

Gain, in certain cases, may be treated as capital gain in which of the following situations?

a. Upon recognition of a nonbusiness bad debt

b. Upon the sale of inventory

c. On the sale of Section 1231 property

d. In none of the above situations

Answer 1

Option 'C' is correct

On the sale of section 1231 property.

Section 1231 assets are the assets comprising Principally of Personal and Real Property used in trade or business and held for over 12 months whose eventual sale or disposal is only incidental to the business.

So, Gain on sale of Section 1231 property assets are treated as Capital Gain and losses to be treated as ordinary losses.

Sale of Inventory is a business income and not treated as capital gain.