Thoren has the following items for the year: $4,000 of short-term capital gain, $5,000 of 0%/15%/20% long-term capital gain, and $1,500 of 28% capital loss.Which of the following is correct?
A)The $1,500 loss will first be offset by the $4,000 short-term gain.
B)The $1,500 loss will first be offset by the $5,000 long-term gain.
C)The $4,000 short-term gain will first be offset by the $5,000 long-term gain.
D)The taxpayer will have a net short-term capital loss.
E)None of these.

Question

Quizplus · Accepted Answer

Long-term gains are offset before short-term gains, so the $1,500 loss will first be offset by the $5,000 long-term gain. This will leave $3,500 of long-term gains, which will be taxed at 0%, 15%, or 20% depending on Thoren's income. The remaining $4,000 short-term gain will be taxed at his ordinary income tax rate.

Thoren Has the Following Items for the Year: $4,000 of Short-Term