Demetrius had a $4,000 short-term loss and a $3,000 long-term gain from a collectible, a $2,000 gain from Section 1250 unrecaptured property. What is the netting effect of these gains and losses on his 1040?
A. $2,000 short-term loss is offset against the Section 1250 property first, then the remaining $2,000 against the collectible gain leaving $1,000 taxed at 28%.
B. As each of these gains and losses are taxed at different rates, there is no netting of short-term and long-term gains or losses.
C. The $4,000 short-term loss is allowed to be taken in total as an ordinary loss, and the net long-term gain of $5,000 is added to his 1040 and taxed at 0%, 15%, or 20% depending on his regular tax bracket.
D. $4,000 short-term loss is offset against the $3,000 collectible first, then the remaining $1,000 against the Section 1250 property, with a $1,000 gain taxed at 25%.
Answer: D
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