Vertical, Inc., has a 2012 net § 1231 gain of $67,000 and had a $22,000 net § 1231 loss in 2011.For 2012, Vertical's net § 1231 gain is treated as:
A)$45,000 long-term capital gain and $22,000 ordinary loss.
B)$67,000 ordinary gain.
C)$45,000 long-term capital gain and $22,000 ordinary gain.
D)$67,000 capital gain.
E)None of the above.

Question

Quizplus · Accepted Answer

According to the rules, if a taxpayer has a net § 1231 gain for the year, it is treated as long-term capital gain. In this case, since Vertical Inc. had a net § 1231 gain of $67,000 in 2012, it will be treated as a long-term capital gain. However, since the company had a net § 1231 loss of $22,000 in 2011, that loss is treated as an ordinary loss. Therefore, the net gain for 2012 would be a combination of long-term capital gain ($67,000) and ordinary gain ($22,000), resulting in choice C being correct.