Question

In X8, Karl had the following capital gains (losses) from the sale of his investments: $6,000 LTCG, $30,000 STCG, ($12,000) LTCL, and ($18,000) STCL. What is the amount and nature of Karl's capital gains and losses?

A. $6,000 net short-term capital gain.
B. $6,000 net long-term capital loss.
C. $12,000 net short-term capital gain.
D. $6,000 net short-term capital loss
E. None of the above

Answer 1

Karl has a net short-term capital gain of $12,000 after offsetting his capital gains and losses against each other.

Step-by-step explanation:

To calculate Karl's capital gains and losses, we need to net his long-term capital gains (LTCG) and losses (LTCL) together as well as his short-term capital gains (STCG) and losses (STCL). Karl's LTCG is $6,000, and his LTCL is $12,000. When these are netted together, Karl has a net LTCL of $6,000 ($6,000 LTCG - $12,000 LTCL). Similarly, Karl's STCG is $30,000, and his STCL is $18,000. When netted, Karl has a net STCG of $12,000 ($30,000 STCG - $18,000 STCL).

Next, we need to net the short-term gains against the long-term losses. Karl has a net STCG of $12,000 and a net LTCL of $6,000. His net capital gain is therefore $6,000, which is the difference between the net STCG of $12,000 and the net LTCL of $6,000.

Thus, the correct answer is C. $12,000 net short-term capital gain.