The following assets in Jack's business were sold in 2016:
Asset
Holding Period
Gain/(Loss)
Office Equipment
6 years
$1,100
Automobile
8 months
($ 800)
ABC Stock (capital asset)
2 years
$1,400

The office equipment had a zero adjusted basis and was purchased for $8,000.The automobile was purchased for $2,000 and sold for $1,200.The ABC stock was purchased for $1,800 and sold for $3,200.In 2016 (the year of sale),Jack should report what amount of net capital gain and net ordinary income?
A)$1,700 LTCG.
B)$600 LTCG and $300 ordinary gain.
C)$1,400 LTCG and $300 ordinary gain.
D)$2,500 LTCG and $800 ordinary loss.
E)None of the above.

Question

The following assets in Jack's business were sold in 2016:
Asset
Holding Period
Gain/(Loss)
Office Equipment
6 years
$1,100
Automobile
8 months
($ 800)
ABC Stock (capital asset)
2 years
$1,400
​
The office equipment had a zero adjusted basis and was purchased for $8,000.The automobile was purchased for $2,000 and sold for $1,200.The ABC stock was purchased for $1,800 and sold for $3,200.In 2016 (the year of sale),Jack should report what amount of net capital gain and net ordinary income?
A)$1,700 LTCG.
B)$600 LTCG and $300 ordinary gain.
C)$1,400 LTCG and $300 ordinary gain.
D)$2,500 LTCG and $800 ordinary loss.
E)None of the above.

Quizplus · Accepted Answer

To calculate the net capital gain, we add the gains and losses from the sale of capital assets: 
$1,400 (gain from ABC Stock) + $1,100 (gain from office equipment) + ($800) (loss from automobile) = $1,700 net capital gain.

To calculate the net ordinary income, we only consider the gain from the sale of the automobile, which was sold within one year of purchase (short-term capital gain) and therefore treated as ordinary income: 
($800) loss from automobile = $800 ordinary loss.

So, the total gains are $1,700 LTCG and $800 ordinary loss, which results in $1,400 LTCG and $300 ordinary gain. Therefore, the best choice is C.

The Following Assets in Jack's Business Were Sold in 2016