Question

Last year, an investor had a 5,000 loss after netting all realized capital gains and losses. This year the investor has a1,000 capital gain. After netting his gains and losses, what will be his tax situation this year?

1) He will have a $1,000 loss to carry over to the next year.
2) There will be no tax consequences.
3) He will offset $1,000 ordinary income this year.
4) He will have a $1,000 gain.

Answer 1

The investor can use the previous year's $5,000 loss to offset this year's $1,000 capital gain, resulting in a $4,000 loss carryover to the following year.

Step-by-step explanation:

The investor's tax situation for the current year, after having a $5,000 loss from the previous year and realizing a $1,000 capital gain this year, depends on the tax laws regarding capital loss carryovers. Typically, capital losses can be carried forward to offset capital gains in future years. Therefore, the $5,000 loss from the previous year can be used to offset the $1,000 gain from this year, resulting in a remaining loss of $4,000 that can be carried forward to subsequent years. The investor's specific tax situation this year would be option 4: He will have a $1,000 gain, which is offset by the previous year's loss, leaving a $4,000 loss to carry over to the next year.