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exchange of capital assets are limited to the extent allowed
under sections 1211 and 1212. Sec. 165(f). Subject to the
limitations of section 1211, taxpayers can carry forward their
capital losses to succeeding taxable years. Sec. 1212(b). Under
section 1211, deductions for losses on the sale or exchange of
capital assets are permitted only to the extent of the gain from
such sales or exchanges, plus the lower of: (1) Three thousand
dollars ($1,500 in the case of a married individual filing
separately); or (2) the excess of such losses over such gains.
Sec. 1211(b). Section 1212(b)(1)(B) provides that the excess of
the net long-term capital loss over the net short-term capital
gain is to be treated as a long-term capital loss in the
succeeding taxable year.
To be entitled to a deduction under section 165(a), a
taxpayer is required to keep records to establish the deductions
to which he or she is entitled. Sec. 6001. If a deduction is
carried forward from one year to another, the taxpayer must keep
records to substantiate the amount that is carried forward. Sec.
1.6001-1(e), Income Tax Regs. To substantiate a capital loss
carryforward, the taxpayer must show: That a loss was incurred;
when the loss was incurred; that the taxpayer is entitled to
deduct the loss; whether the loss is capital or noncapital, or
business or personal; and the amount of capital gain during the
intervening years, in order to compute any allowable
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Last modified: May 25, 2011