Question

Which of the following is/are not true with respect to capital gains and losses? (choose all that apply)

a. capital gains are taxed as ordinary income

b. capital losses are carried forward indefinitely

c. capital losses are 100% deductible in the year incurred

d. they arise from core business activities

Answer 1

ANSWER:

a. Capital gains are taxed as ordinary income. TRUE

Capital gains are incomes that arises out of selling a capital asset at a price higher than its original price. Capital gains are taxed as ordinary income. They are included in the taxable income generallly, in many scenarios they are taxed at a lower rate.

b. Capital losses are carried forward indefinitely. TRUE

Amount of net capital losses exeeding the capital gain, can be carried forward indefinitely till the amount is exhausted. Net capital losss can only be deducted upto a maximum amount of $3,000, in a year the amount exceeding the limit can be carried forward indefinitely.

c. Capital losses are 100% deductible in the year incurred. FALSE

Capital losses are deductible only upto a maximum amount of $3,000, and remaining amount is carry forward to the subsequent year.

d. They arise from core business activities. FALSE

Capital gains or losses arises out of selling a capital asset. This does not arise from core business activities. Core business activities are activities that happens on a daily basis and it involves the selling of the primary product or service of the business. While capital gain arises out of activities that do not happen frequently.