Series 7 practice questionhardTax Implications — Capital Gains
An investor has the following results for the year: $8,000 short-term capital gain, $3,000 short-term capital loss, $2,000 long-term capital gain, and $12,000 long-term capital loss. What is the tax treatment?
- ANet $5,000 capital loss; deduct $3,000 and carry forward $2,000✓ Correct answer
- BNet $5,000 capital loss; deduct all $5,000
- CNet $3,000 capital gain
- DNet $5,000 capital loss; deduct $5,000 against ordinary income
Explanation
Why A — Net $5,000 capital loss; deduct $3,000 and carry forward $2,000
Step 1: Net short-term: $8,000 gain - $3,000 loss = $5,000 net STCG. Step 2: Net long-term: $2,000 gain - $12,000 loss = -$10,000 net LTCL. Step 3: Net across categories: $5,000 STCG - $10,000 LTCL = -$5,000 net capital loss. Only $3,000 of capital losses can be deducted against ordinary income per year. The remaining $2,000 carries forward to the next tax year.
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