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Property transaction: Section and capital loss carryover

Yoshida owns two parcels of business land (Section 1231 assets). One parcel can be sold at a loss of $30K, and the other parcel can be sold at a gain of $40K. Yoshida has no norecaptured Section 1231 losses from prior years.

The parcels could be sold at any time because potential purchasers are abundant. Yoshida has a $25K short-term capital loss carryover from a prior tax year and no capital assets that could be sold to generate long-term capital gains. Both the land parcels have been held more than one year.

What would you advice for Yoshida? (Assume tax rates are constant and ignore the present value of future cash flow.)

Solution Preview

In addition to the two conditions listed in the problem
1. Tax rates are constant
2. Ignore PV calculations

The response assumes that
3. Yoshida is an unincorporated business
4. This isn't a distress sale.

The following questions would normally be asked in this type of planning situation
5. Are there plans for the use of the ...

Solution Summary

The solution walks through a planning session where a series of questions would be asked to determine the most viable outcome for Yoshida. Then tax gains and losses are calculated for selling either property, and both properties followed by an opinion about what is best.