Question

A sculpture that Korliss Kane held for investment was destroyed in a flood. The sculpture was insured, and Korliss had a $60,000 gain from this casualty. He also had a $17,000 loss from an uninsured antique vase that was destroyed by the flood. The vase was also held for investment. Korliss had no other property transactions during the year and has no nonrecaptured § 1231 losses from prior years. Both the sculpture and the vase had been held more than one year when the flood occurred.

a.   Korliss has a net § 1231 gain of $ for the year. That gain is treated as a long-term capital gain .

Feedback

b.   Complete a letter to Korliss explaining the nature of the gain or loss.

Maloney, Hoffman, Raabe, & Young, CPAs
5191 Natorp Boulevard
Mason, OH 45040

November 23, 2017

Mr. Korliss Kane
2367 Meridian Road
Hannibal, MO 63401

Dear Mr. Kane:

Thank you for the opportunity to discuss the tax effect of the two casualties you suffered this year. Both the sculpture and the vase were assets you were holding for investment. The sculpture casualty resulted in a $60,000 gain because it was insured. The vase casualty resulted in a $17,000 loss because it was not insured.

This results in a net § 1231 gain of $. Because you had no § 1231 losses in prior years, the
$ is treated as a long-term capital gain . The gain is eligible for a tax rate of no more than  %.

If you have any questions concerning these transactions or other tax matters, please feel free to telephone me.

Sincerely,

Sheila Dailey, CPA
Partner

Answer 1

Since sculpture and vase had been held for more than one year, we cansay that gain obtain by these will be treated as long term capial gain. Because Korliss has kept it for the investment purpose and he had been held it for more than one year, so any inveestment instrument which held for more than one year needs to be treated as long term asset and gain incurred on that asset will be treated as long term capital gain.

Since long tem capial gain is ocurred it has to be taxed as per income slab of Korliss either 15% or 20%.