Spencer Has an Investment in Two Parcels of Vacant Land

question 1

Multiple Choice

Spencer has an investment in two parcels of vacant land. Parcel 1 is a capital asset and parcel 2 is a § 1231 asset. Spencer already has short-term capital loss for the year he would like to offset with capital gain. Spencer has § 1231 lookback loss that exceeds the gain from the disposition of either land parcel. Spencer only wants to sell one land parcel and each of them would yield the same amount of gain. The gain that would be recognized exceeds the short- term capital loss Spencer already has. Which of the statements below is correct?

• A) Spencer will have a net capital loss no matter which land parcel he sells.
• B) Spencer will have a net capital loss if he sells parcel 2.
• C) Spencer will have a net capital loss if he sells parcel 1.
• D) Spencer will have a net capital gain if he sells either parcel 1 or parcel 2.
• E) None of the above.

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Definitions:

Shareholders

Individuals or entities that own shares in a corporation, giving them ownership interest in the company.

Cost Method

An accounting method used to record investments, where the investment is recorded at its acquisition cost without adjusting for changes in market value.

Investment Account

An Investment Account is a financial account held by an investor with a brokerage firm, bank, or custodian that holds securities and other investments.

Net Income

The total profit of a company after all expenses and taxes have been deducted from revenue.