Cobra Inc. sold stock for a $25,000 loss five years ago. It has been carrying over the capital loss for five years, and the loss will expire at the end of this year because Cobra has not had any capital gains. Earlier this year Cobra sold a parcel of land held four years for business use and will recognize a $30,000 gain. Cobra is thinking about selling some machinery used in its business for the past three years. During this time technology has dramatically changed so Cobra will recognize a $32,000 loss on the sale of the machinery. Cobra is trying to decide whether to sell the machinery at year-end or early next year. Cobra is profitable and has a consistent marginal tax rate of 21%. When should Cobra sell the equipment?
A. early next year
B. current year
C. current year, but arrange an installment sale to spread the loss recognition over the two years
D. either the current year or next year
Answer: A
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