Question

An individual taxpayer has the following gains and losses from property transactions. What is the effect on the taxpayer’s taxable income?

$ 4,000 Long-term capital gain
7,000 Long-term capital loss

10,000 Section 1231 gain

6,000 Section 1231 loss

3,000 Short-term capital gain

6,000 Short-term capital loss

Answer 1

Step 1. Net the $10,000 Section 1231 gain with the $6,000 Section 1231 loss; the result is a net Section 1231 gain of $4,000.

Step 2. Net the $4,000 Section 1231 gain with the long-term capital gains and losses; the result is a net $1,000 long-term capital gain ($4,000 + $4,000 - $7,000)

Step 3. The $3,000 short-term capital gain is netted with the $6,000 short-term capital loss; the result is a net $3,000 short-term capital loss.

Step 4. The $3,000 STCL and $1,000 LTCG are netted; the result is a $2,000 STCL. This loss is deducted from the taxpayer’s other income, reducing taxable income by $2,000.