Question

During the current year, Nancy had the following transactions: Short-term capital loss ($2,400) Short-term capital gain 2,000 Short-term capital loss carryover from 2 years ago (1,400) Long-term capital gain (15% basket) 3,800 Long-term capital loss (28% basket) (8,000) Nancy is in the 35% marginal tax bracket for the current year. What is the amount of her capital loss deduction in the current year, and what is the amount and character of her capital loss carryover?

Answer 1

Solution :

When figuring a current year net capital loss , capital losses carried forward from previous years are not included.

Hence current year net short term capital loss = 2400-2000 = $400 .

Also , the net long term capital loss = 8000-3800 = $ 4200 ( Irrespective of the tax rate, gains can be offset against losses).

Since the losses exceed the gains, the losses need to be carried forward. There would be no capital deduction in the current year.

The Net capital loss (NCL) = excess of Capital losses ( both short term and long term) over capital gains (short term and long term)

The NCL is treated as an short term capital loss in a carryover tax year.

Hence, the total NCL for current year = 400+ 4200 = $4600

Also there is another $ 1400 short term capital loss carried forward from two years to the next year.