Question

Tax Strategies for Business-Owned Properties" Don, the owner of Watt Inc., has a building that he bought for $2,500,000. It has depreciated for $350,000. Now Don wants to sell it for $4,000,000. He has heard about ordinary losses. He has heard about capital losses. Unfortunately, Don does not know the difference between these two types of losses. To add to the confusion, he doesn't know what the difference is between a realized and a recognized loss. How would you explain these concepts to Don? What type of advice would you offer to him?

Answer 1

Dear Student,

1. Capital losses and ordinary losses

receive different tax treatment.

capital loss results when you sell acapital asset, such as stocks and bonds, for less than your cost.

ordinary loss occurs from the normal operations of a business when expenses exceed income

2. A loss is realized immediately after you sell an asset for a loss.

loss is recognized when the loss may be applied against your taxes. Most sales create a realized and recognized loss at the same time, immediately after the sale. The IRS delays the tax impact of certain transactions.

In the above example

1500000 is capital gain

And this all is included in PPP IFRS 16 and Financial instruments IFRS 9