Investment Company and Variable Contracts Products Representative (Series 6)Practice Exam

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What is the maximum amount of capital losses an individual can use to offset ordinary income in one year?

$2,000
$3,000
$4,000
$5,000

The correct answer is: $3,000

The correct answer is based on the tax rules governing capital losses for individuals. According to IRS regulations, individuals can utilize up to $3,000 of net capital losses to offset ordinary income in a given tax year. This means if an individual has capital losses exceeding this amount, they can only count $3,000 against their ordinary income, with any remaining losses carried forward to future tax years. This limitation is designed to provide some relief to taxpayers in lower-income brackets or those with capital investment losses, allowing them to reduce their taxable income by a specified, manageable amount within each tax year. Understanding this cap is essential for effective tax planning and filing.