Question

Gain or loss on the sale of the following property might be recharacterized under Code Sec. 1231:

The loss on the condemnation of a building lot purchased by the taxpayer 10 years ago and held for appreciation in value.

Both A and B.

The loss on the sale of stock owned by taxpayer for six months. The gain on the sale of a backhoe used in taxpayer's construction business.

Both A and C.

Answer 1

Internal revenue code has defined 1231 properties in the the section 1231 code of internal revenue code.

The loss that has incurred can be treated as an ordinary loss and can be deducted from the person taxable income and this is hence favourable as this is 100% deductible from the person income that is assessed to taxes.

However inventories are not included in the 1234 sections and hence the loss on the stock that is held for 6 months is not covered under 1234 provisions and must be recognized as normal business loss.

The gain that has arrived from the property whose loss is claimed in section 1234 as normal business loss can be assessed as long term gains or capital gains if the gain exceeds the loss amount that has been claimed in section 1234.