Question

You have a client with $40,000 of capital losses. Which statements are true? Check all that apply a. Capital loss carryovers can be carried over indefinitely until they are all used. b. $3,000 of the loss can be deducted in the year of the loss. c. The $40,000 loss can be deducted in the year of the loss. d. Any unused capital losses are carried over to the next year.

Answer 1

Answer - a, b and d

In this case, if the client's capital losses are more than the capital gains, they can deduct the difference as a loss in their tax return. This loss is limited to offset $3000 of ordinary income per year. Unused capital losses expire in the year of tax payer's death, to the extent remained unused on the final income tax return. Meaning, they can otherwise be carried over indefinitely until they are all used.

Hence, the statements a, b, d are true.