June Study Question of the Month

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Question

 

 

 

 

 

 

There are basically four things you can do with a short-term capital loss. Which of the following is the order in which you would typically do them?
 
  1. Offset a short-term capital gain, offset a long-term capital gain, deduct up to $3,000 from income, carry over for a future year
  2. Offset a long-term capital gain, offset a short-term capital gain, deduct up to $3,000 from income, carry over for a future year
  3. Deduct up to $3,000 from income, offset a short-term capital gain, offset a long-term capital gain, carry over for a future year
  4. Deduct up to $3,000 from income, carry over for a future year, offset a long-term capital gain, offset a short-term capital gain
Answer: A. Capital losses can be used to offset capital gains on a tax return. The taxpayer must first offset short-term gains with short-term losses and long-term gains with long-term losses. If there are any long-term or short-term gains remaining, these can be offset with any remaining losses. If there are any losses remaining after all gains have been offset, up to $3,000 of the losses can be deducted from a person’s taxable income each year. If there are still losses remaining after that, they can be carried over to the following year.
 

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