Question

Individual taxpayers prefer capital gain income and ordinary losses because capital gains are taxed at lower tax rates and ordinary losses are not limited to net $3,000 per year like net capital losses are.

True

False

Answer 1

False.

• Taxpayers like their deductible loss to be ordinary.
• Ordinary loss, on the whole, offers greater tax savings than a long-term capital loss.
• An ordinary loss is mostly fully deductible in the year of the loss, whereas capital loss is not.
• An ordinary loss will offset ordinary income and capital gains on a one-to-one basis whereas a capital loss is strictly limited to offsetting a capital gain and up to $3,000 of ordinary income. The remaining capital loss must be carried over to another year.