Ashburn reported a $104,800 net §1231 gain in Year 6. Assuming Ashburn reported $51,000 of nonrecaptured §1231 losses during Years 1 to 5, what amount of Ashburn's net §1231 gain for Year 6, if any, is treated as ordinary income?
A) $0.
B) $53,800.
C) $51,000.
D) $104,800.
E) None of the choices are correct.

Question

Quizplus · Accepted Answer

When a taxpayer has a net §1231 gain, the gain is first netted against any prior §1231 losses, known as nonrecaptured losses. In this case, Ashburn had $51,000 of nonrecaptured §1231 losses during Years 1 to 5. Therefore, that amount is used to offset Year 6's §1231 gain, leaving $53,800 ($104,800 - $51,000) as the amount of Ashburn's net §1231 gain for the year. However, since the nonrecaptured losses were used to offset the gain, no portion of the Year 6 §1231 gain will be treated as ordinary income. Therefore, the correct answer is C: $51,000.

Ashburn Reported a $104,800 Net §1231 Gain in Year 6