Question

Which of the following is not true about capital assets?

a. For 2015, net long-term capital gains are granted preferential tax treatment.
b. Real property used in a trade or business is not a capital asset.
c. Capital losses may be carried back for 3 years to offset capital gains in those years.
d. Shares of stock held for investment are capital assets.
e. Individual taxpayers may deduct net capital losses of up to $3,000 per year.

Answer 1

The incorrect statement is that capital losses may be carried back for 3 years to offset capital gains in those years; in reality, capital losses can only be carried forward to offset future gains.

Step-by-step explanation:

The question is asking which statement regarding capital assets is not true. The incorrect statement among the options provided is (c) Capital losses may be carried back for 3 years to offset capital gains in those years. This is not accurate because capital losses can only be carried forward to offset future capital gains, not carried back to previous years. Option (a) is correct; net long-term capital gains do receive preferential tax treatment, which includes lower tax rates. Option (b) is also correct; real property used in a trade or business, such as equipment or buildings, is considered a Section 1231 asset, not a capital asset. For option (d), stocks held for investment are indeed capital assets. Lastly, option (e) is true as individual taxpayers may deduct up to $3,000 of net capital losses against other income on their annual tax return.