Selma has a $150,000 short-term capital loss carryforward to 2008 and an $187,00

Question

Selma has a $150,000 short-term capital loss carryforward to 2008 and an $187,000 capital gain from sale of inherited stock in 2008. Because she is going to get married in early 2009 and will have to reveal her 2008 tax return as part of prenuptial financial negotiations with her future spouse, she wants her tax return preparer to show on her 2008 tax return only the $37,000 net capital gain ($187,000 2008 capital gain less the $150,000 carryforward capital loss). She is embarrassed about the large loss carryforward and does not want her future husband to know how large the gain from the sale of inherited stock really was. Is there anything wrong with her approach?

Explanation / Answer

As per disclosure requirement for tax return the short-term capital loss carry forwarded from previous year shall be setoff from the capital gain in current year. For this capital gain of current year as well as brought forward capital loss shall be disclosed in full and then only allowed for set off to arrive at net capital gain. So the approach taken by Selma is wrong.

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