1)Donna, the owner of Watt Incorporated, has a building that she bought for $2,500,000. It has depreciated by $350,000. Now Donna wants to sell it for $4,000,000. She has heard about ordinary losses. She has heard about capital losses. Unfortunately, Donna does not know the difference between these two types of losses. To add to the confusion, she does not know what the difference is between a realized and a recognized loss.

2)How would you explain these concepts to Donna?

3)What type of advice would you offer to her and did any changes brought about by the Tax Cuts and Jobs Act impact your advice?

Ordinary loss is a type of loss happens when expenditures  amplify revenue in normal business operation, it is completely deductible in the year of loss while Capital loss occurs when a capital asset is receded in value, it is not not completely deductible in the year of loss.

Realized loss occurs when a capital asset is receded in value, it is not not completely deductible in the year of loss whereas recognized loss is a type of loss that happens when a loss is upon taxes.

Step-by-step explanation

Solution.

Ordinary loss.

This type of loss happens when expenditures  amplify revenue in normal business operation, it is completely deductible in the year of loss. A ordinary loss will cancel ordinary income as well as capital gain. A good example of ordinary loss is A theft.

Capital loss

Capital loss occurs when a capital asset is receded in value, it is not not completely deductible in the year of loss. Capital loss normally compensate capital gain and ordinary income up to $3,000. Example, a machinery worth $34,000 was sold for $24,000 is a capital loss.

Realized loss.

This is a type of loss realized whenever an asset is sold at loss. If a sale has a delayed tax impact, then it begets a realized loss.

Recognized loss.

This type of loss happens when a loss is upon taxes. If IRS recognizes it earlier then it is a recognized loss.

In whole, all are different and distinct in there terms.