ExpertEasy1 markMultiple Choice
CPA · Question 43 · Area IV: Property Transactions
A taxpayer has a Net Capital Loss of $10,000 in Year 1. They have taxable income of $50,000. How much of the loss can be deducted in Year 1, and what happens to the remainder?
A taxpayer has a Net Capital Loss of $10,000 in Year 1. They have taxable income of $50,000. How much of the loss can be deducted in Year 1, and what happens to the remainder?
Answer options:
A.
$10,000 deducted.
B.
$3,000 deducted; $7,000 carried forward indefinitely.
C.
$3,000 deducted; $7,000 carried back 3 years.
D.
$0 deducted; $10,000 carried forward.
How to approach this question
Individual Rule: Max $3,000 deduction against ordinary income. Carryforward indefinitely. No carryback.
Full Answer
B.$3,000 deducted; $7,000 carried forward indefinitely.✓ Correct
$3,000 deducted; $7,000 carried forward indefinitely.
IRC §1211(b). Individuals are limited to a $3,000 deduction for net capital losses against ordinary income. The excess is carried forward indefinitely under §1212(b).
Common mistakes
Confusing individual rules with corporate rules (which allow carrybacks but no deduction against ordinary income).
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