A taxpayer has the following gains and losses from property transactions in the current year: $40,000 Section 1231 gain $25,000 Section 1231 loss $12,000 Long-term capital gain $9,000 Short-term capital loss.

How are these transactions treated for tax purposes if the taxpayer recognized an $8,000 Section 1231 loss in the previous tax year?

1. $18,000 long-term capital gain
2. $15,000 Section 1231 gain; $3,000 short-term capital loss
3. $8,000 ordinary income from look-back; $10,000 long-term capital gain
4. $8,000 ordinary income from look-back; $7,000 Section 1231 gain; $3,000 long-term capital gain

can someone explain why the answer is number 3