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
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Answer #1

Answer:

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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