1. Distinguish between a Capital and an Ordinary loss.
2. Describe a Wash Sale.
Answer for 1)
Difference between Capital losses and ordinary losses:
(a) Capital losses in general arise when sale of share, stocks, bonds for an amount that is less than cost.
Where as ordinary loss are losses which occur when expenditure exceeds income in normal course of business.
(b) Capital loss is subject to annual deduction limit which is currently $3000 and anything that exceeds over it in general must be carried to next year even any income left during the year. However no such limits there exists for ordinary losses.
Answer for 2)
A wash sale is sale where an investor sell a particular shares or stocks for a loss and intend to purchase them again with an intention of maximizing tax benefits by claiming such capital loss.
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