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Originally Posted by GreenTrader Tax
Line 21 of Form 1040 has no loss limitations on ordinary losses.
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I was reading IRS Pub 550 and IRS Pub 334 seeking info about taxes on spot forex. I wonder if I lose over $50,000 in a tax year and had
not opted out 988, do I need to file Form 8886 for Loss Transactions and fill out Line 21 of Form 1040 as ordinary loss? Also, if I lost let's say -$75,000 but also made +$100,000 during same tax year which results end-of-year net p/l of +$25,000, do I not need to file Form 8886 based on net p/l or I must file 8886 based on loss of -$75,000? (See Pub below)
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IRS Publication 550:
Loss transactions. For individuals, a loss transaction is any transaction that results in a deductible loss if the gross amount of the loss is at least $2 million in a single tax year or $4 million in any combination of tax years. A loss from a foreign currency transaction under Internal Revenue Code section 988 is a loss transaction if the gross amount of the loss is at least $50,000 in a single tax year, whether or not the loss flows through from an S corporation or partnership.
IRS Publication 334:
Reportable transactions. You must file Form 8886, Reportable Transaction Disclosure Statement, to report certain transactions. You may have to pay a penalty if you are required to file Form 8886 but do not do so. You may also have to pay interest and penalties on any reportable transaction understatements. Reportable transactions include (1) transactions the same as or substantially similar to tax avoidance transactions identified by the IRS, (2) transactions offered to you under conditions of confidentiality for which you paid an advisor a minimum fee, (3) transactions for which you have, or a related party has, contractual protection against disallowance of the tax benefits, (4) transactions that result in losses of at least $2 million in any single tax year ($50,000 if from certain foreign currency transactions) or $4 million in any combination of tax years, (5) transactions resulting in book-tax differences of more than $10 million on a gross basis, and (6) transactions with asset holding periods of 45 days or less and that result in a tax credit of more than $250,000. For more information, see the Instructions for Form 8886.
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