Question

In 2009, you had one stock you sold for a loss of $7000, one stock you sold for a gain of $4000, and one stock you sold that decreased in value $2000. Assuming you take the full available deduction on your 2009 income and don’t sell any stock in 2010, how much can you deduct from 2010 income?

The answer is $2000, but why? Please explain and show the math involved.

Answer 1

Here the capital gain amount is $4,000 and the capital loss amount is $7,000. As per tax provisions the capital loss for a year can be adjusted against that year’s capital gain and hence the entire amount of $4,000 of capital gain will be used to adjust the capital loss amount of $7,000.

The $2,000 decrease in value cannot be deducted from this year’s income and hence will be adjusted or deducted from 2010 income.

Hence the answer is $2,000.