Question

Taxpayer w had an allowable capital loss of $10,000 in the current year. w also had a taxable capital gain of $5,000 in the previous year. w had no other capital transactions. how might w take full advantage of the loss? multiple choice

a. deduct it in the current year against all sources of income.
b. deduct $5,000 loss carry-back to the previous year and deduct the remaining amount in the current year.
b. since w had no taxable capital gains in the current year, w will have to carry-forward the amount for the next 20 years.
d. carry back enough allowable capital loss to offset the taxable capital gain in the previous year and carry the remainder forward indefinitely.

Answer 1

Taxpayer W should select option D to offset the previous year's taxable capital gain with the current year's capital loss and carry any remainder forward indefinitely, optimizing the use of the capital loss.

Step-by-step explanation:

In the scenario where taxpayer W had an allowable capital loss of $10,000 in the current year but also had a taxable capital gain of $5,000 in the previous year, and no other capital transactions, W might take full advantage of the loss by carrying back the loss to the previous year and offsetting it against the capital gains of that year. The correct answer among the given choices is option D: carry back enough allowable capital loss to offset the taxable capital gain in the previous year and carry the remainder forward indefinitely. This choice allows W to utilize the capital loss most efficiently by reducing the taxable capital gains from the previous year and potentially decreasing W's tax liability for that year. Any remaining loss not used in the carryback year can be carried forward to offset future capital gains indefinitely.