Identify the Type(s) of Gain or Loss That Would Be

question 19

Multiple Choice

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 recapture, Section 291 recapture, or Section 1250 unrecaptured gain.
-A business sells a machine used in its business for $18,000. It had purchased the machine 10 months earlier for $26,000. What is the amount and type of the $8,000 loss on the sale of the asset?

• A) Ordinary loss
• B) Section 1231 loss
• C) Section 1245 loss
• D) Capital loss

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Definitions:

Tax Shield Approach

A method used in finance to reduce taxable income by properly deducting expenses like mortgage interest, which decreases overall taxes owed.

Operating Cash Flows

The amount of cash generated by a company's regular business operations.

Sunk Costs

Expenses that have already been incurred and cannot be recovered.