Question

: Required information Problem 7-50 (LO 7-2) (Algo) [The following information applies to the questions displayed below.] For 2020, Sherri has a short-term loss of $2,360 and a long-term loss of $7,200. Problem 7-50 Part-a (Algo) a. How much loss can Sherri deduct in 2020? Deductible loss ! Required Information Problem 7-50 (LO 7-2) (Algo) [The following information applies to the questions displayed below.] For 2020, Sherri has a short-term loss of $2,360 and a long-term loss of $7,200. Problem 7-50 Part-b (Algo) b. How much loss will Sherri carry over to 2021, and what is the character of the loss carryover?

Answer 1

Sherri can deduct $3,000 of her total capital losses in 2020, and she can carry forward the remaining $6,560 as a long-term loss to 2021.

Step-by-step explanation:

For 2020, Sherri can deduct a total loss of up to $3,000 against her ordinary income on her tax return for the year, regardless of whether the losses are short-term or long-term. This is the maximum capital loss deduction allowed for individuals against regular income. Because Sherri has a short-term loss of $2,360 and a long-term loss of $7,200, her total capital loss is $9,560 ($2,360 + $7,200). After she deducts $3,000, there is still a remaining loss of $6,560 ($9,560 - $3,000).

Sherri can carry forward the remaining $6,560 loss to 2021. Since Sherri's short-term losses are completely used up in the deduction, the carryover is characterized as a long-term loss. She will be able to use this loss to offset any capital gains first, and if her capital gains are less than the carried-over loss, she can then deduct up to $3,000 against her other income, repeating this process each year until the loss is fully utilized.