This year, Irwin sold several securities that left him with the following types of gains and losses: Long-term gain—$58,000; Short-term gain—$41,000; Long-term loss—$32,000; Short-term loss—$52,000. What is the net capital gain or loss on Irwin's security sales?

This year, Irwin sold several securities that left him with the following types of gains and losses: Long-term gain—$58,000; Short-term gain—$41,000; Long-term loss—$32,000; Short-term loss—$52,000. What is the net capital gain or loss on Irwin's security sales?

• A. Net short-term loss of $3,000
• B. Net long-term loss of $24,200
• C. Net long-term gain of $26,000 and net short-term loss of $11,000
• D. Net long-term gain of $15,000

Answer: (D)

Netting capital gains and losses by holding period is what this item tests. First, group results by how long you held the securities and net within each group: long-term gains minus long-term losses gives the net long-term amount, and short-term gains minus short-term losses gives the net short-term amount. Then combine those two results to see the overall picture. Here, long-term: 58,000 gain minus 32,000 loss equals a net long-term gain of 26,000. Short-term: 41,000 gain minus 52,000 loss equals a net short-term loss of 11,000. Bringing them together, 26,000 minus 11,000 yields an overall net capital gain of 15,000. Because the final result is a gain, and the long-term component remains positive after offsetting the short-term loss, the outcome is a net long-term gain of 15,000 for tax purposes. The short-term loss reduced the long-term gain, but did not create a net short-term gain.

Netting capital gains and losses by holding period is what this item tests. First, group results by how long you held the securities and net within each group: long-term gains minus long-term losses gives the net long-term amount, and short-term gains minus short-term losses gives the net short-term amount. Then combine those two results to see the overall picture.

Here, long-term: 58,000 gain minus 32,000 loss equals a net long-term gain of 26,000. Short-term: 41,000 gain minus 52,000 loss equals a net short-term loss of 11,000. Bringing them together, 26,000 minus 11,000 yields an overall net capital gain of 15,000.

Because the final result is a gain, and the long-term component remains positive after offsetting the short-term loss, the outcome is a net long-term gain of 15,000 for tax purposes. The short-term loss reduced the long-term gain, but did not create a net short-term gain.