Answer:
a. Yes, the ring is a capital asset.
b-1. The amount the gain from its sale by Barbella is $1,085.
b-2. Since the ring was held by Barbella for less than a year, the nature of the gain is therefore a short term capital gain.
Step-by-step explanation:
Note: This question is not complete. The complete question is therefore provided before answering the question as follows:
Barbella purchased a wedding ring for $15 at a yard sale in May. She thought the ring was costume jewelry, but it turned out to be a real diamond ring. She is not in the business of buying and selling anything. She researched the ring on the Internet and discovered that it was worth at least $1,000. She sold it on an Internet auction site for $1,100 in July.
a. Was the ring a capital asset?
b. What were the amount and nature of the gain or loss from its sale by Barbella?
Explanation of the answers is now given as follows:
a. Was the ring a capital asset?
Yes, the ring is a capital asset.
Despite that Barbella purchased the wedding ring for personal use, the ring still has to be treated as a capital that it is actually is.
b. What were the amount and nature of the gain or loss from its sale by Barbella?
b-1. The amount of the capital gain can be calculated as follows:
Capital gain = Sales proceed - Cost of purchase = $1,100 - $15 = $1,085
Therefore, the amount the gain from its sale by Barbella is $1,085.
b-2. Since the ring was held by Barbella for less than a year, the nature of the gain is therefore a short term capital gain.