FL Tax Law Specialist Practice Questions - Florida Bar Board Certified - Tax Law Exam

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An individual taxpayer has $40,000 of net long-term capital gain from selling stock held three years and a $10,000 net short-term capital loss in the same year. How are these netted for federal income tax purposes?

The short-term loss first offsets ordinary income up to $3,000, then the remainder offsets the long-term gain The long-term gain is taxed at ordinary rates because a short-term loss converts it to ordinary income The two amounts are reported separately and cannot be netted against each other The short-term loss is netted against the long-term gain, leaving $30,000 of net capital gain taxed at preferential rates

Correct Answer:

The short-term loss is netted against the long-term gain, leaving $30,000 of net capital gain taxed at preferential rates

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