How do we offset Capital gains and losses each year? Bracketing is a process for
ID: 2532095 • Letter: H
Question
How do we offset Capital gains and losses each year? Bracketing is a process for doing this. What is included in the bracketing process?
HINT:
Long-Term Capital Gains/LTCG
Long-Term Capital Losses/LTCL
Short-Term Capital Gains/STCG
Short-Term Capital Losses/STCL
With the following information, do the bracketing as you explained above and determine what type of gain or loss you would have.
Sold piece of investment land held for two years for a gain of$5,000
Sold stock in a company held for three months for a loss of($2,000)
Sold stock in a company held for five years for a loss($3,000)
Sold piece of investment land held for seven months for a gain of$1,000
LTCG - $5,000
STCL - $2000 stock
LTCL - $3,000 stock
STCG - $1,000
Explanation / Answer
The income tax does not allow loss under the head capital gain to be set off againest any income from other head this can only be set off within the capital gain head.long term capital gain can be set off only againest long term capital gains.short term capital losses are allowed to be ser off againest both long term and short term gains.
Fortunately if you are not able to set off the entire capital loss in the same year, both short term and long term capital loss can be carried forward immediately following the assessment year in which the loss was first computed.
Hence in the above problem firstly long term capital loss of $3000 will be set of againest LTCG of $5000 then balance of long term capital gain reamail $2000 i.e.( $5000-3000).
STCL of $2000 will be set off firstly againest STCG to the extent of $1000 and remaining STCL $1000 will be set off againest LTCG..now remaining balance of LTCG is $1000 ( $2000-$1000).
On such remaining amount of capital gain i.e. $1000 you have to pay tax...
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