Capital Gains and Losses
Questions and comments about tax rules for buying and selling stocks, mutual funds, real estate and other assets.
Am I Forced To Offset Qualified Dividends With Capital Losses?
Posted by: Arby, May 19, 2007 01:50AM
First time poster here. I searched but could not find the answer.

Let's say a taxpayer has a 3K of capital loss and 1K of qualified dividend income. No other gains, losses, or divies.

Are all 3K of the capital losses deducted from ordinary income and the qualified dividends taxed as 15% or is 2K net deducted from ordinary income?

Thanks


Re: Am I Forced To Offset Qualified Dividends With Capital Losses?
Posted by: Art, May 19, 2007 02:09AM
All 3000 shows up on form 1040 line 13 where it would reduce other ordinary income.

If you have 1000 of qualified dividends, then you have at least that much of ordinary dividends.

So your 3000 of capital loss reduces at least 1000 of ordinary income.

Another question is how much, if any, of that 3000 capital loss is carried to next year?

You would fill out the capital loss carryover worksheet in IRS Pub 550 to answer that question.

Re: Am I Forced To Offset Qualified Dividends With Capital Losses?
Posted by: edh, May 19, 2007 02:39AM
Art,
I don't think that the OP was saying that he had ONLY capital losses and dividends.


Arby,
Qualifying dividends are NOT netted with capital losses for purposes of computing the tax. The $1000 of qualifying dividends will be taxed at 15% (or 5% if your taxable income is low enough).


Re: Am I Forced To Offset Qualified Dividends With Capital Losses?
Posted by: Arby, May 19, 2007 02:50AM
Thanks guys!

So it seems that there may be some cases in which X amount of qualifed dividends is better than X amount of capital gains distributions.

But conversely I can't think of any case in which a mutual fund's capital gains distribution would be superior to an equal amount of qualified dividends.

Re: Am I Forced To Offset Qualified Dividends With Capital Losses?
Posted by: Les Grans, May 19, 2007 03:55AM
If you had a boatload of capital losses, I think the qualified dividends would be taxed, while the capital gain distributions would be absorbed by the huge capital losses. Better taxes this year, but maybe washes out someday in the future.



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