Final answer:
Sherri can deduct a total loss of $8,290 on her 2023 tax return, but she is limited to a maximum deduction of $3,000 against other income for that year. Any remaining loss of $5,290 can be carried over to future years.
Step-by-step explanation:
For 2023, Sherri can deduct a combined total of her short-term loss of $2,890 and her long-term loss of $5,400 from her taxable income. According to the IRS tax rules, the deduction of capital losses is limited to the total amount of capital losses minus any capital gains, with an additional limit of $3,000 ($1,500 if married filing separately) that can be deducted against other income. If her total capital loss exceeds this threshold, the excess can be carried over to the following tax year(s).
For Sherri, this means that she can claim the total loss of $8,290 ($2,890 short-term loss plus $5,400 long-term loss) on her 2023 tax return, but only up to the amount of $3,000. The remaining loss carryover of $5,290 can be deducted in future tax years. If her loss was less than or equal to $3,000, she could have deducted the entire amount in one year, without the need for a carryover. It is also important to note that taxes can be complex, and individual circumstances may affect tax treatment, so consulting with a qualified tax professional is always recommended for personalized advice.