Answer the following statements true (T) or false (F)

Question

1. If an individual taxpayer's net long-term capital losses exceed the net short-term capital gains, the excess may be offset against ordinary income up to $3,000 per year. Any excess losses over $3,000 may be carried over indefinitely.
2. If an individual taxpayer's net long-term capital losses exceed the net short-term capital gains, the excess may be offset against ordinary income up to $3,000 per year. Any excess losses over $3,000 may be carried back three years and carried forward five years.
3. When an individual taxpayer has NSTCL and NLTCG, the loss is offset against NLTCG from the 28% group, then NLTCG from the 25% group, and finally against NLTCG from the 15% or 20% group.
4. Taxpayers who own mutual funds recognize their share of capital gains even if no distributions are received.
5. Stock purchased on December 15, 2017, which becomes worthless in March 2018, produces a STCL since the holding period is one year or less.

Answer 1

1. TRUE
Noncorporate taxpayers are limited to recognizing a maximum of $3,000 of net capital losses per year. Excess losses are carried forward.
2. FALSE
Individual taxpayers with net capital losses exceeding $3,000 will carry forward the loss indefinitely.
3. TRUE
NSTCLs are applied against the three tax rate groups of NLTCGs in the order of highest rate to lowest rate.
4. TRUE
Capital gains realized by mutual funds are passed through to investors for income tax recognition purposes even if no distributions are paid out or the investor chooses to reinvest the distributions.
5. FALSE
If a security that is a capital asset becomes worthless during the year, any loss is treated as a loss from the sale or exchange of a capital asset on the last day of the tax year. Therefore, the holding period in this case is December 15, 2017 through December 31, 2018 resulting in a LTCL.