Question

1.) §For 2018, Zing Company had the following gains and losses from §1231 property:

•1231 Casualty gains:          $23,000

•1231 Casualty losses:      (5,000)

•§1231 gains:                       35,000

•§1231 losses:                     (60,000)

•What is the effect of the §1231 transactions on Zing’s taxable income for 2018?

2.) Assume that Zing Company had the following §1231 gains and losses in 2019. What is the tax treatment of the §1231 gains and losses for 2019?

•Casualty loss $(8,000)

•§1231 gains 33,000

•§1231 losses (6,000)

3.) For 2018, Green Building Company has $200,000 of taxable income before consideration of the following transactions:

•$5,000 loss on the sale of equipment used in the business for 3 years.

•$35,000 gain on the sale of a building used in the business for 5 years.

•$10,000 of the gain is attributable to depreciation.

•$15,000 loss on the sale of land used in the business for 2 years.

•Determine Green’s taxable income for 2018 and the amount and character of any carryforwards assuming Green had the following Section 1231 gains and losses in the previous years (and no prior):

•2017 ($ 7,000)

•2016 $27,000

•2015 $ 8,000

•2014 ($10,000)

•2013 ($20,000)

Answer 1

Solution

1.The transactions from 1231 property are as follows:

1231 Casualty gains:          $23,000

•1231 Casualty losses:      (5,000)

•§1231 gains:                       35,000

•§1231 losses:                     (60,000)

Net effect = 23,000 - 5,000+35,000-60,000

=> Net loss of $7,000

According to section 1231 , loss arising out of sale of property related to section 1231 will be considered as ordinary loss which will impacting the ordinary gain by reducing it.

So Zing's taxable income for 2018 will reduce

2.

Casualty loss $(8,000)

•§1231 gains 33,000

•§1231 losses (6,000)

Net effect = -8,000 +33,000-6,000

=> Net Gain = $19,000

According to IRS section related to 1231 , the loss arising from 1231 within a span of last 5 years should be considered.

In other words, here in 2019 year,the net gain from 1231 property is $ 19,000 but in the previous year (2018) ,the loss from the same is $7,000 .So, Zing Company should claim that $7,000 loss they showed in 2018.So,that 7,000 is shown as ordinary income and the remaining $12,000 ($17,000 -$7,000 ) is shown as 1231 capital gains.

3. For 2018, Green Building Company has $200,000 of taxable income before consideration of the following transactions:

•$5,000 loss on the sale of equipment used in the business for 3 years.

•$35,000 gain on the sale of a building used in the business for 5 years.

•$10,000 of the gain is attributable to depreciation

•$15,000 loss on the sale of land used in the business for 2 years.

Net effect = $25000 of gain.

But since there was a loss of $15,000 and $5000 reported 2 years and 3 years ago,the total loss which is reported within a span of 5 years would be $20,000 ,so $20,000 is shown as ordinary income and the remaining $5,000 is shown as the capital gain.

So in addition to the taxable income of $2,00,000 that the company is having prior to this transaction and company has also pay the capital gain tax on $5,000 from 1231 section

4.Initially,Green's Taxable Income for 2018 is $2,00,000

2017 ($ 7,000)

•2016 $27,000

•2015 $ 8,000

•2014 ($10,000)

•2013 ($20,000)

Net effect of the transaction related to these 5 years = -7000+27,000+8,000-10,000-20,000

Net Loss of $2,000

So,this is considered in the year 2018

So,Net Taxable Income for the year 2018 is : $2,00,000 - $2,000 which is $1,90,000