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 the above.

Question

Quizplus · Accepted Answer

Capital losses are first offset against capital gains of the same type. Therefore, the $1,500 capital loss will be applied against the $5,000 long-term capital gain. This will leave $3,500 of long-term capital gain. The short-term capital gain of $4,000 will be taxed at the taxpayer's marginal tax rate, and any remaining long-term capital gain of $3,500 will be taxed at the appropriate long-term capital gains tax rate.

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