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

If there are losses remaining after offsetting gains, what amount may be used against ordinary income?

1. $1,500

2. $3,000

3. $5,000

4. All remaining losses

The correct answer is: $3,000

The correct amount that can be used against ordinary income is $3,000. This limit is set by tax regulations, which allow individual taxpayers to use capital losses to offset ordinary income, but only up to a specified amount. Specifically, if a taxpayer has capital losses that exceed their capital gains, they can deduct up to $3,000 of those losses against ordinary income in a given tax year. If losses exceed this amount, the excess can be carried over to future tax years, where it can again be applied against capital gains and, if there are still losses left, up to the $3,000 limit against ordinary income in subsequent years. It's important to note that the thresholds for deductible losses are specifically established by the IRS, which helps to ensure that taxpayers can still benefit from investment losses while maintaining limits to prevent abuse of tax deductions.