In 2016, Bertha Jarow (head of household with three dependents) had a $28,000 loss from the sale of a personal residence. She also purchased from an individual inventor for $7,000 (and resold in two months for $18,000) a patent on a rubber bonding process. The patent had not yet been reduced to practice. Bertha purchased the patent as an investment. In addition, she had the following capital gains and losses from stock transactions: Long-term capital loss ($6,000) Long-term capital loss carryover from 2015 (12,000) Short-term capital gain 21,000 Short-term capital loss (7,000) a. Bertha has a net long-term capital loss of $ ???. Bertha has a net short-term capital gain of $ 14000. As a result, Bertha has an overall net short-term capital gain of $???
b. Complete the letter to Bertha explaining the tax treatment of the sale of her personal residence. Assume Bertha's income from other sources puts her in the 28% bracket.
Hoffman, Young, Raabe, Maloney, & Nellen, CPAs
5191 Natorp Boulevard
Mason, OH 45040
March 17, 2017
Ms. Bertha Jarow
120 West Street
Ashland, OR 97520
Dear Ms. Jarow:
This letter is in response to your request for an explanation of the tax treatment of the sale of your residence. As you know, the residence was sold for less than your cost. Thus, you had an $??? loss on the residence sale. The tax law does not allow that loss to be deducted on your tax return because the home was a personal-use asset. The only type of loss deductible on personal-use assets is a casualty loss.