Question

In the current year, Ellen sold investment stock that she had owned for five years. The sale generated a loss of $5,000. Assuming she had no other asset sales during the year, how should Ellen handle the loss for the current tax year purposes?

Ellen can deduct $5,000 for AGI.
Ellen can deduct $3,000 for AGI.
Ellen can deduct $3,000 from AGI.
Ellen can deduct $5,000 from AGI.

Answer 1

Ellen can deduct $3,000 from her adjusted gross income (AGI) for the current tax year for the investment stock loss, and the unused portion of the loss can be carried forward to future tax years.

Step-by-step explanation:

When it comes to handling capital losses on investments for tax purposes, the Internal Revenue Service (IRS) has specific rules. In the scenario given, where Ellen sold investment stock generating a loss of $5,000 and she had no other asset sales during the year, Ellen can deduct $3,000 from her adjusted gross income (AGI) for the current tax year. The remaining $2,000 can potentially be carried forward to future tax years to offset any capital gains or to continue taking a $3,000 deduction each year until the loss is fully absorbed.