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Petitioners also reported an overall capital loss of $14,132
as follows:
Net long-term capital loss ($63,149)
Net short-term capital gain 49,017
Overall capital loss 1(14,132)
1On Form 1040, Line 13 (Capital gain or (loss)), petitioners deducted
the maximum of $3,000 of the $14,132 overall capital loss against ordinary
income. See sec. 1211(b). Petitioners carried forward the remaining $11,132
of net capital loss pursuant to sec. 1212(b)(1)(B).
In addition, petitioners calculated the $114,738 net gain
(Form 4952, line 4b) and the $65,721 net capital gain (Form 4952,
line 4c) as follows:
Schedule D, line 8 $(3,601)
Schedule D, line 9 69,322
NET CAPITAL GAIN 65,721
Plus: Net Short-Term Capital Gain 49,017
NET GAIN 114,738
Petitioners did not include their $141,621 loss carryover as
an item of investment income. Petitioners determined that
because their net investment income of $54,061 was greater than
their total investment interest expense of $26,721, they were
entitled to take a full deduction of $26,721 for investment
interest expense.
B. Respondent’s Deficiency Notice
In the notice of deficiency, respondent disallowed $21,677
of petitioners’ $26,721 investment interest expense deduction on
the basis that the deductible amount is limited to petitioners’
net investment income of $5,044. Respondent determined that
petitioners’ $141,621 loss carryover was an item of investment
income and, therefore, resulted in zero net gain, zero net
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Last modified: May 25, 2011