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long-term capital gain”, the prior year’s long-term capital loss
that is carried forward to the current taxable year under section
1212(b)(1)(B) is treated as a long-term capital loss for such
taxable year. Sec. 1.1222-1(b)(2), Income Tax Regs.
Furthermore, the pertinent parts of the regulations provide:
the portion thereof which is a short-term capital loss
carryover shall be carried over to the succeeding
taxable year and treated as a short-term capital loss
sustained in such succeeding taxable year, and the
portion thereof which constitutes a long-term capital
loss carryover shall be carried over to the succeeding
taxable year and treated as a long-term capital loss
sustained in such succeeding taxable year. The
carryovers are included in the succeeding taxable year
in the determination of the amount of the short-term
capital loss, the net short-term capital gain or loss,
the long-term capital loss, and the net long-term
capital gain or loss in such year, the net capital loss
in such year, and the capital loss carryovers from such
year. * * * [Sec. 1.1212-1(b)(1), Income Tax Regs.;
emphasis added.]
It follows that because short-term capital loss carryovers and
long-term capital loss carryovers are treated as losses in the
current taxable year, they are also losses for purposes of
determining “net gain” in section 163(d)(4)(B)(ii)(I).
Accordingly, we conclude as a matter of law that the term
“net gain” for purposes of section 163(d)(4)(B)(ii)(I) means the
excess, if any, of total gains over total losses, including
capital loss carryovers, from the disposition of property held
for investment.12
12 We note that respondent has adopted this view and has
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