[leglock]

This question is a real world example and relates to 1231 and capital assets.

Have a friend who owns an excavation business. He bought a used digging machine and one month later realized it was a lemon and sold it at a loss. Obviously it doesn’t meet the requirement for a 1231 asset because it was not held longer than 12 months.

What is the character of this loss, short-term capital or ordinary?

My thinking is it is a short term capital loss that flows through to his personal taxes (because he has a sub s corp) and can only be used to offset cap gains?

[leglock]

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