Demetrius had a $4,000 short-term loss and a $3,000 long-term gain from a collectible,a $2,000 gain from Section 1250 unrecaptured property.What is the netting effect of these gains and losses on his 1040?
A)$2,000 short-term loss is offset against the Section 1250 property first,then the remaining $2,000 against the collectible gain leaving $1,000 taxed at 28%.
B)As each of these gains and losses are taxed at different rates,there is no netting of short-term and long-term gains or losses.
C)$4,000 short-term loss is offset against the $3,000 collectible first,then the remaining $1,000 against the Section 1250 property,with a $1,000 gain taxed at 25%.
D)The $4,000 short-term loss is allowed to be taken in total as an ordinary loss,and the net long-term gain of $5,000 is added to his 1040 and taxed at 0%,15%,or 20% depending on his regular tax bracket.

Question

Quizplus · Accepted Answer

According to the tax rules, collectibles are subject to a higher capital gains tax rate, and short-term capital losses should be offset first against any capital gains. Therefore, the $4,000 short-term loss should be applied first to the $3,000 collectible long-term gain, leaving a remaining $1,000 capital gain which will be taxed at the collectible gain rate (28%). Then, the $2,000 unrecaptured Section 1250 gain will be taxed at the same rate as other long-term gains (25%). Therefore, the netting effect of these gains and losses is a $1,000 long-term capital gain taxed at 28%, and a $2,000 long-term capital gain taxed at 25%.

Demetrius Had a $4,000 Short-Term Loss and a $3,000 Long-Term