Patrick and Nathalie Simons have a short-term capital loss of $5,000. How much of this loss is deductible on their joint return?

When dealing with capital losses under federal tax law, individuals are allowed to deduct capital losses from their taxable income, but there are limitations on the deductibility based on whether the losses are short-term or long-term.

In this scenario, Patrick and Nathalie Simons have a short-term capital loss of $5,000. The tax law allows taxpayers to offset these losses against any capital gains they may have. If their only capital loss is short-term and exceeds any capital gains, they can then deduct an amount up to $3,000 of that loss against their ordinary income if they are married and filing jointly.

Given that they have a $5,000 loss with no mention of any capital gains to offset it, they can utilize the full $3,000 limit for the deduction against their ordinary income. The remaining $2,000 of the loss does not go to waste; instead, it is carried over to future tax years, where it can be used to offset capital gains or deducted up to the allowed limit in those years.

Thus, the correct answer reflects that they can deduct $3,000 on their joint return, with a $2,000 carryover to be applied to future tax years, making this option the accurate representation of how