A taxpayer has a $5,000 short-term capital loss, a $2,000 short-term capital gain, and a $10,000 long-term capital gain. What is the net capital gain/loss and its character?

Answer options:

$7,000 Short-Term Capital Gain

$7,000 Long-Term Capital Gain

$3,000 Short-Term Loss and $10,000 Long-Term Gain

$7,000 Ordinary Income

How to approach this question

1. Net ST: ($5k) + $2k = ($3k). 2. Net LT: $10k. 3. Net Total: ($3k) + $10k = $7k. 4. Character: The gain ($10k) was LT, so the net result is LT.

Full Answer

B.$7,000 Long-Term Capital Gain✓ Correct

First, net STCG and STCL: ($5,000) + $2,000 = ($3,000) Net STCL. Then net with LTCG: ($3,000) + $10,000 = $7,000 Net Capital Gain. Since the LTCG > STCL, the net gain is Long-Term.

Common mistakes

Reporting the STCL and LTCG separately without netting them.

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