Tax Advice
- Thread starter hype
- Start date
They know that if they give us a basic answer to our question, we will be able to do our taxes ourselves. All that separates us from doing that anyway is that we don't want to spend hours reading moronic tax law (like "multiply by 115% if you are not a fisherman making more than $367129 per year"). It is time for another amendment to the constitution.
Dear Hype:
I agree with the answer posted by Vhehn. The general rule on capital losses is that you first offset them against capital gain (and if you don't have capital gain, then obviously there's no offset), and then you can deduct the excess capital loss against ordinary income to the extent of $3k per year. The remaining capital loss is carried over to the next taxable year, where the same treatment ensues. This will continue until the capital loss carryforward is either consumed or you die.
If there is a valid, existing mark-to-market election in place (and it doesn't sound like there is), there are different rules. Basically, the gains and losses are treated as ordinary gains/losses (as distinct from capital gain/loss), for which there are different tax rules.
I agree with the answer posted by Vhehn. The general rule on capital losses is that you first offset them against capital gain (and if you don't have capital gain, then obviously there's no offset), and then you can deduct the excess capital loss against ordinary income to the extent of $3k per year. The remaining capital loss is carried over to the next taxable year, where the same treatment ensues. This will continue until the capital loss carryforward is either consumed or you die.
If there is a valid, existing mark-to-market election in place (and it doesn't sound like there is), there are different rules. Basically, the gains and losses are treated as ordinary gains/losses (as distinct from capital gain/loss), for which there are different tax rules.
Dear GMS:
I don't have time right now to scrutinize the tax form, but the netting of capital gains is based on definitions set out in Code Section 1222, and the rules don't leave any discretion about how it is to be done. Long term gains and losses are netted against each other to create "net long-term capital [gain][loss]." Short terms gains and losses are similarly netted against each other to determine "net short-term capital [gain][loss]." Then there is a further netting of those net figures to determine a final net figure called either "net capital gain" or "net capital loss."
Once those figures are determined, then you enter a real nightmare that only the CPAs and attorneys have to deal with--Code section 1(h), which is the mechanism to apply long term capital gain rates and short term (ordinary income) rates to the various components.
The good news is this: simply follow the form, do what it says to do, and the sausage that falls out the other end will be the right answer. The sausage is good; the mechanism for determining the sausage is a complicated mess.
I don't have time right now to scrutinize the tax form, but the netting of capital gains is based on definitions set out in Code Section 1222, and the rules don't leave any discretion about how it is to be done. Long term gains and losses are netted against each other to create "net long-term capital [gain][loss]." Short terms gains and losses are similarly netted against each other to determine "net short-term capital [gain][loss]." Then there is a further netting of those net figures to determine a final net figure called either "net capital gain" or "net capital loss."
Once those figures are determined, then you enter a real nightmare that only the CPAs and attorneys have to deal with--Code section 1(h), which is the mechanism to apply long term capital gain rates and short term (ordinary income) rates to the various components.
The good news is this: simply follow the form, do what it says to do, and the sausage that falls out the other end will be the right answer. The sausage is good; the mechanism for determining the sausage is a complicated mess.