Property transaction: Section 1231 and recapture provisions
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.)
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.
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