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) $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%.
B) 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.
C) $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%.
D) 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.

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Farah Mazaher · Accepted Answer

Final Answer : A, Explanation :  According to the IRS rules, collectibles gains and losses are netted separately from other types of gains and losses. Therefore, Demetrius' $4,000 short-term loss will first offset his $3,000 collectible long-term gain, leaving a remaining $1,000 short-term loss. This remaining $1,000 loss will then be offset against his $2,000 Section 1250 unrecaptured gain, leaving a net gain of $1,000 that will be taxed at a 25% rate.

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