Question

# In the current year, Niles, an individual, has 70,000 of ordinary income, a Net Short Term...

In the current year, Niles, an individual, has 70,000 of ordinary income, a Net Short Term Capital Loss (NSTCL) of 20,000 and a Net Long Term Capital Gain (NLTCG) of 4,200. From his capital gains and losses, Niles reports:

Question 14 options:

 an offset against ordinary income of \$3,000 and a NSTCL carry-forward of \$12,800 an offset against ordinary income of \$3,000 and a NSTCL carry-forward of \$4,200 an offset against ordinary income of \$3,000 and a NSTCL carry-forward of \$15,800 an offset against ordinary income of \$20,000 an offset against ordinary income of \$20,000 and NLTCG of 4,200

The correct answer is an offset against ordinary income of \$3,000 and a NSTCL carry-forward of \$12,800.

Explanation :

Given data:

• Net long term capital gain (NLTCG) = \$ 4,200
• Net short term capital loss (NSTCL) = \$ 20,000

Calculating Net short term capital loss after adjusting :

 Net short term capital loss after adjusting = NLTCG -  NSTCL = \$ 4,200 - \$ 20,000 = \$ 15,800 \$ 15,800

Out of \$ 15,800 Niles can adjust \$ 3,000 NSTCL to reduce ordinary income and carry forward remaining = \$ 15,800 -\$ 3,000 = \$ 12,800 NSTCL.

As per Form 1040  Any excess losses can be deducted against ordinary income up to \$3,000 (\$1,500 if married filing separately) on line 13 of Form 1040.Realized capital losses are first offset against realized capital gains.

Therefore, the answer is an offset against ordinary income of \$3,000 and a NSTCL carry-forward of \$12,800

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