Question

For 2015, Sherri has a short-term loss of $2,960 and a long-term loss of $4,800.

1.How much loss can Sherri deduct in 2015 2.How much loss will Sherri carryover to 2016, and what is the character of the loss carryover? Rich and Shauna Nielson file a joint tax return, and they itemize deductions. Assume their marginal tax rate on ordinary income is 25 percent. The Nielsons incur $2,100 in miscellaneous itemized deductions, excluding investment expenses. They also incur $1,500 in noninterest investment expenses during the year. What tax savings do they receive from the investment expenses under the following assumptions: 1. Their AGI is $85,000. Tax savings from investment expenses _________ 2.Their AGI is $116,000. Tax savings from investment expenses________ For 2015, Sherri has a short-term loss of $2,460 and a long-term loss of $6,000. a. How much loss can Sherri deduct in 2015?

Answer 1

Ans-1-a- Sherri has a $2,960 short-term capital loss and a $4,800 long-term capital loss. Because both are losses they cannot be netted.Individual taxpayers can offset $3,000 of capital loss against ordinary income,with short-term losses being offset first.

Ans-b- Individual taxpayers can offset $3,000 of capital loss against ordinary income, with short-term losses being offset first. Therefore Sherri can deduct the $2,960 short term capital loss and $40($3,000-$2,960)of the long-term capital loss in 2015. The remaining $4,760 of the long-term capital loss ($4,800-$40 duduct currently) is carried forward to 2016.

Ans-2-a- The Nielsons have $3,600 ($2,100+$1,500) of miscellaneous itemised deductions including investment expenses. These deduction are only deductible to the extent they exceed 2 percent of AGI.if AGI is $85,000, 2 percent of AGI is $1,700 and $1,900 of the $3,600 is deductible. The deductible portion is first treated as investment expense and and then noninvestment miscellaneous itemized deductions. In this situation, all $1,500 of the investment expenses are deductible. The tax benefit of the investment expenses is $375 ($1,500*25/100 marginal tax rate.

Ans-2-b- If AGI is $116,000, 2% is $2,320. In this case only$1,280 ($3,600-$2,320) of miscellaneous itemized deductions are deductible. Because the deductible portion is first considered to be the investment expenses, all $1,280 of the deductible miscellaneous itemized deductions are considered to be investment expenses. The tax benefit from $1,280 deductible investment expense is $ 320 ($1,280*25/100 marginal tax rate).