Bob has capital losses of $4,000 that exceed his capital gains in the current year. Of...

Bob has capital losses of $4,000 that exceed his capital gains in the current year. Of this amount, $1,200 is a short-term capital loss and $2,800 is a long-term capital loss. What is the amount and character of the capital loss carryforward?

a. It will be a $1,000 capital loss pro rated between short-term ($300) and long-term ($700) based on the total amount of the excess capital loss.

b. It will be a $1,000 long-term capital loss because Bob must first use the short-term loss to offset ordinary income.

c. It will be a $1,000 capital loss carryforward. Bob can choose how much of the gain to allocate to short-term versus long-term.

d. It will be a $1,000 short-term capital loss because Bob must first use the long-term loss to offset ordinary income.

Solutions

Expert Solution

In case of an individual, capital losses to the extent of $3000 is allowed to be offset against the other sources of income and the remaining capital loss shall be carried forward indefinitely.

Also, if there is both short term and long term capital loss, the short term capital loss is first utillized to offset against other sources of income (to the extent of $3000)

In the given case,

Short term capital loss = $1200

long term capital loss = $2800

Thus entire $1200 of the short term capital loss and an amount of $1800 of the long term capital loss shall be utilized against the other source of income.

Thus the remaining $1000 of the long term capital loss shall be carried forward indefinately.

Thus the answer would be:

b. It will be a $1,000 long-term capital loss because Bob must first use the short-term loss to offset ordinary income.

For any clarification, please comment. Kindly Up Vote

ekkarill92 answered 1 year ago

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