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Proctor Inc. was incorporated in 2014 and adopted a calendar year. Here is a schedule of Proctor's net Section 1231 gains and (losses) reported on its tax returns through 2019. 2014 2015 2016 2017 2018 2019 $-0- $(3,800) $9,040 $(15,900) $-0- $-0- In 2020, Proctor recognized a $25,000 gain on the sale of business land. How is this gain characterized on Proctor's tax return

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Answer:

This gain is characterized on Proctor's tax return as $15,900 ordinary gain and $9,100 Section 1231 gain.

Explanation:

The following sorted schedule of Proctor's net Section 1231 gains and (losses) reported on its tax returns through 2019 are given in the question.

2014           2015          2016           2017         2018        2019

$-0-        $(3,800)      $9,040      $(15,900)      $-0-         $-0-

The explanation of the answer is now given as follows:

The $9,040 Section 1231 profit in 2016 made the loss of $3,800 Section 1231 loss in 2015 to be recaptured in 2016.

Consequently, the only loss that must be recaptured in 2020 is the 2017 Section 1231 loss.

Therefore, we have:

Section 1231 gain = Gain on the sale of business land in 2020 - Section 1231 loss in 2017 = $25,000 - $15,900 = $9,100

Therefore, this gain is characterized on Proctor's tax return as $15,900 ordinary gain and $9,100 Section 1231 gain.

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