Final answer:
To determine Fay's taxable gain for this year, we need to calculate her total capital gains and offset them with her capital loss carryovers. From her net short-term gain of $6,000 and net long-term gain of $5,000, her total gain is $11,000. After offsetting her losses, the taxable gain for this year is $1,000 from the short-term gain.
Step-by-step explanation:
To determine how much of Fay's gain for this year will be taxable, we need to calculate her total capital gains. Fay's net short-term gain is $6,000 and her net long-term gain is $5,000, resulting in a total gain of $11,000. Since Fay has short-term capital loss carryovers of $5,000 and long-term capital loss carryovers of $40,000, both carried over from the previous year, we can deduct these losses from her total gain.
First, let's offset the short-term capital loss carryover against the short-term gain. Since the short-term capital loss carryover is $5,000 and the short-term gain is $6,000, only $1,000 of the short-term gain will be taxable.
Next, we can offset the long-term capital loss carryover against the long-term gain. Since the long-term capital loss carryover is $40,000 and the long-term gain is $5,000, the entire long-term gain will be offset and none of it will be taxable.
Therefore, the total taxable gain for this year will be $1,000 from the short-term gain.