Property Plant and Equipment Paper 9

(d) The requirement is to determine the amount of excess of net long-term capital loss over net short-term capital gain that Sol Corp. can offset against ordinary income. A corporation’s net capital loss cannot be offset against ordinary income. Instead, a net capital loss is generally carried back three years and forward five years as a STCL to offset capital gains in those years.

(d) The requirement is to determine the proper treatment for a $24,000 NLTCL for Nam Corp. A corporation’s capital losses can only be used to offset capital gains. If a corporation has a net capital loss, the net capital loss cannot be currently deducted, but must be carried back three years and forward five years as a STCL to offset capital gains in those years. Since Nam had not realized any capital gains since it began operations, the $24,000 LTCL can only be carried forward for five years as a STCL.

(b) The requirement is to determine the holding period for determining long-term capital gains and losses. Long-term capital gains and losses result if capital assets are held more than twelve months.

(a) The requirement is to determine the treatment for the sale of the antique by Wald. Since the antique was held for personal use, the sale of the antique at a loss is not deductible.

(c) The requirement is to determine the capital loss carryover to 2013. The NSTCL and the NLTCL result in a net capital loss of $6,000. LTCLs are deductible dollar for dollar, the same as STCLs. Since an individual can deduct a net capital loss up to a maximum of $3,000, the net capital loss of $6,000 results in a capital loss deduction of $3,000 for 2012, and a long-term capital loss carryover to 2013 of $3,000.

(c) The requirement is to determine the item that is included in the definition of capital assets. The definition of capital assets includes property held as an investment and would include a manufacturing company’s investment in US Treasury bonds. In contrast, the definition specifically excludes accounts receivable arising from the sale of inventory, depreciable property used in a trade or business, and property held primarily for sale to customers in the ordinary course of a trade or business.

(b) The requirement is to determine the amount of Hall’s capital assets. The definition of capital assets includes investment property and property held for personal use (e.g., personal residence and furnishings), but excludes property used in a trade or business (e.g., limousine).

(b) The requirement is to determine the proper treatment for the gain recognized on the sale of a painting that was purchased in 2007 and held for personal use. The definition of “capital assets” includes investment property and property held for personal use (if sold at a gain). Because the painting was held for more than one year, the gain from the sale of the painting must be reported as a long-term capital gain. Note that if personal- use property is sold at a loss, the loss is not deductible.

(b) The requirement is to determine the correct treatment for a capital loss incurred by a married couple filing a joint return for 2011. Capital losses first offset capital gains, and then are allowed as a deduction of up to $3,000 against ordinary income, with any unused capital loss carried forward indefinitely. Note that a married taxpayer filing separately can only offset up to $1,500 of net capital loss against ordinary income.

(d) The requirement is to determine the proper classification of land used as a parking lot and a shed erected on the lot for customer transactions. The definition of capital assets includes investment property and property held for personal use, but excludes any property used in a trade or business. The definition of Sec. 1231 assets generally includes business assets held more than one year. Since the land and shed were used in conjunction with a parking lot business, they are properly classified as Sec. 1231 assets.