Question

Which of the following is NOT true: §1231 gains

: Will be taxed as ordinary income if the taxpayer has nonrecaptured net §1231 losses in the five preceding years

. Will be taxed as ordinary income if the taxpayer has nonrecaptured net §1231 losses in the next five years.

Are combined with §1231 losses to determine the taxpayer's net §1231 gain or loss.

Are potentially eligible for long-term capital gain treatment.

Answer 1

Answer -

Step - (1) - Information Given -

Which of the following is NOT true: §1231 gains

Option - (1) - Will be taxed as ordinary income if the taxpayer has nonrecaptured net §1231 losses in the five preceding years.

Option - (2) - Will be taxed as ordinary income if the taxpayer has nonrecaptured net §1231 losses in the next five years.

Option - (3) - Are combined with §1231 losses to determine the taxpayer's net §1231 gain or loss.

Option - (4) - Are potentially eligible for long-term capital gain treatment.

.

Step - ( 2 ) - Analysis -

As per section 1231 of the U.S. Internal Revenue Code, The net section 1231 gains must be offset by net section 1231 losses from the five preceding tax years that have not previously been captured. To the extent of these losses, the net section 1231 gain is treated as Ordinary income.

In the given case, Options - (1), (3), (4) are Incorrect, because all these statements are true as per section 1231.

.

Step - ( 3 ) - Conclusion -

Option - (2) is Correct, because the given statement is not true, as per the provisions of section 1231 of the U.S. Internal Revenue Code.