Question

Lobster, Inc. incurs the following losses on disposition of business assets during the year: Loss on the abandonment of office equipment 25,000. Loss on the sale of a building (straight-line depreciation taken in prior years of200,000) 250,000. Loss on the sale of delivery trucks15,000. What is the amount and character of the losses to be reported on Lobster's tax return?

1) 40,000 Section 1231 loss only
2) 40,000 Section 1231 loss, 50,000 long-term capital loss
3) 40,000 Section 1231 loss, 250,000 long-term capital loss
4) 290,000 Section 1231 loss

Answer 1

The losses to be reported on Lobster's tax return include $40,000 in Section 1231 losses, with no long-term capital losses.

Step-by-step explanation:

The amount and character of the losses to be reported on Lobster's tax return are as follows:

• Loss on the abandonment of office equipment: $25,000 (Section 1231 loss)
• Loss on the sale of a building: $50,000 (Section 1231 loss)
• Loss on the sale of delivery trucks: $15,000 (Section 1231 loss)

The total amount of Section 1231 losses is $40,000.

No long-term capital losses can be reported in this case because the losses on the sale of the building and delivery trucks are Section 1231 losses, not long-term capital losses.