Series 7 practice questionmediumTax Implications — Capital Gains
An investor has a $10,000 net short-term capital loss and a $4,000 net long-term capital gain for the year. What is the tax treatment?
- AThe investor has a $6,000 net capital loss and can deduct $3,000 against ordinary income✓ Correct answer
- BThe investor has a $6,000 net capital loss, all of which is deductible
- CThe investor has a $14,000 total loss
- DThe gains and losses cannot be netted against each other
Explanation
Why A — The investor has a $6,000 net capital loss and can deduct $3,000 against ordinary income
Short-term and long-term gains and losses are netted: $4,000 LTCG - $10,000 STCL = $6,000 net capital loss. Individual taxpayers can deduct up to $3,000 of net capital losses against ordinary income per year. The remaining $3,000 loss carries forward to future tax years indefinitely until fully used.
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