In addition to his salary, Peter realizes a $1,000 short-term capital gain and a $5,000 long-term capital loss. The net effect of the capital asset transactions on Peter's adjusted gross income is
A)$-0-
B)$1,000
C)$(3,000)
D)$(4,000)
E)$(5,000)

Question

Quizplus · Accepted Answer

Short-term capital gains and long-term capital losses are netted against each other, and the net amount is then combined with other income to determine adjusted gross income.

In this case, Peter has a net long-term capital loss of $5,000 and a short-term capital gain of $1,000. The $1,000 gain is not enough to fully offset the $5,000 loss, so the remaining loss of $4,000 ($5,000 - $1,000) is subtracted from Peter's salary income to arrive at his adjusted gross income.

Therefore, the net effect of these capital asset transactions on Peter's adjusted gross income is $(3,000) [which is option C].

In Addition to His Salary, Peter Realizes a $1,000 Short-Term