Question

Gains do not exceed losses. If the section 1231 gains for any taxable year do not exceed the section 1231 losses for such taxable year, such gains and losses shall not be treated as gains and losses from sales or exchanges of capital assets. What is the condition for gains and losses to be treated as gains and losses from sales or exchanges of capital assets?

1) The section 1231 gains exceed the section 1231 losses
2) The section 1231 gains equal the section 1231 losses
3) The section 1231 gains are less than the section 1231 losses
4) The section 1231 gains and losses are not related to sales or exchanges of capital assets

Answer 1

Section 1231 gains must exceed section 1231 losses for them to be treated as gains or losses from sales or exchanges of capital assets.

Step-by-step explanation:

The condition for gains and losses to be treated as gains and losses from sales or exchanges of capital assets under section 1231 is that the section 1231 gains exceed the section 1231 losses. In other words, if the total gains from the sale or exchange of capital assets are greater than the total losses from such transactions, then these gains and losses will be treated as gains and losses from sales or exchanges of capital assets. This is stated directly in the question as the opposite condition, where gains do not exceed losses, results in gains and losses not being treated as capital assets. Hence, the correct answer to the student's question is: 1) The section 1231 gains exceed the section 1231 losses.