Types of losses are passive-capital and related party losses

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Reference no: EM131212910

Provide a summary of three or four types of losses, the rules for deducting the losses, and if possible, explain why the Internal Revenue Code (IRC) limits the deduction (United States).

For example, nonbusiness bad debts. The IRC allows the deduction, but it's treated as a short-term capital loss. And net capital losses are limited to a $3,000 deduction per year. The excess is carried forward indefinitely. On the other hand, business bad debts are ordinary loss deductions, a much more favorable treatment. Nonbusiness bad debts are similar to worthless stock and therefore are deducted as capital losses.

Other types of losses are: passive losses, capital losses, related-party losses, personal-use property losses, hobby losses, casualty losses, net operating losses, etc.

Reference no: EM131212910

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