Question

Capital Gains and Losses (LO. 5)

Jawan has the following capital gains and losses in the current year:

Short-term capital loss	$1,300
Long-term capital gain	8,600
Long-term capital loss	4,100
Long-term capital loss carryforward	3,500

What is the effect of the capital gains and losses on Jawan's taxable income?

The capital gain and loss netting results in a short-term capital loss of $_________.

Answer 1

1. First Netting:-

Short term gain and loss netting:-

Short term capital gain:- Nil

Short term capital loss :- $(1300)

Net short term capital loss = $(1300)

Long term gain and loss netting:-

Long term capital gain:- $8600

Long term capital loss :- $(4100)

Long term capital loss carry forward $(3500)

Net long term capital gain :- $1000

Since the first netting results in both gain and a loss , therefore a second netting is required to reduce the capital gains and loss to either a net gain or loss for the year.

Second Netting:-

Net short term capital loss $(1300)

Net long term capital gain $1000

Net Short term capital loss $300

Jawan can deduct the $300 net short - term capital loss.

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