| Course | ACC-6060 Federal Taxation |
|---|---|
| Module | Module 3 |
| Paper type | Module 3 written assignment: gain netting, passive losses and credits |
| Length | About 774 words, 5 pages |
| Format | APA 7 student paper |
| School | Thomas Edison State University |
| Program | Master of Science in Accounting |
| Updated | October 2026 |
Free sample paper for ACC 6060 Module 3
Netting, Suspending and Crediting: Capital Gains, a Rental Loss and Three Credits for a Head of Household
Student Name
Master of Science in Accounting, Thomas Edison State University
ACC-6060: Federal Taxation
Mentor Name
Month Day, Year
Netting, Suspending and Crediting: Capital Gains, a Rental Loss and Three Credits for a Head of Household
Introduction
The Code taxes long-term capital gains and qualified dividends at preferential rates, limits the use of losses from passive activities and then subtracts credits directly from tax. Each rule changes the answer in a different place on the return, so the order of work matters: net the capital transactions, compute AGI with any allowed passive loss, find taxable income, apply the rate schedules and only then subtract credits (Spilker et al., 2019). Amounts are the 2024 figures (Internal Revenue Service, 2023).
Each of these limits serves a policy goal. Preferential rates on long-term gains encourage investment and reduce the lock-in effect, the passive loss rules stop taxpayers from sheltering wages with paper losses from rental and partnership investments, and credits target behavior Congress wants to encourage, such as child care and clean energy, more precisely than deductions can.
Facts
Renata earns $142,000 of wages and received $2,400 of qualified dividends. Her 2024 sales were Stock A, held three years, a $18,000 gain; Stock B, held five months, a $7,000 loss; Stock C, held two years, a $4,000 loss; and gold coins held four years, a $3,000 gain. Her condominium, which she manages herself, produced a $12,000 loss, and her limited partnership interest produced $5,000 of income. Her daughter is eight. She paid $3,000 for after-school care and $15,000 for solar panels on her home.
Part A: Netting Capital Gains and Losses
| Group | Transactions | Net |
|---|---|---|
| Short-term | Stock B loss | ($7,000) |
| Long-term, 28 percent collectibles | Gold coins gain | $3,000 |
| Long-term, 15 percent group | Stock A gain less Stock C loss | $14,000 |
Applying the Net Short-Term Loss
A net short-term loss offsets long-term gains in the highest rate group first. The $7,000 loss wipes out the $3,000 collectibles gain and then reduces the 15 percent group by the remaining $4,000, leaving a $10,000 net long-term gain taxed at 15 percent. Had the netting left a net capital loss, only $3,000 could be deducted against ordinary income each year, with the rest carried forward. Taxpayers respond to these rates: Dowd et al. (2015) estimated that realizations fall noticeably when capital gains rates rise, with the response larger in the short run than over time.
Part B: The Passive Loss Rules
Rental activities are passive by definition, and a limited partner's interest is passive because she does not materially participate. Passive losses offset only passive income, so the $5,000 of partnership income frees $5,000 of the rental loss. The remaining $7,000 could still be deducted through the $25,000 special allowance for rental real estate in which she actively participates, but the allowance shrinks by half of modified AGI above $100,000 and disappears at $150,000. Her modified AGI, computed before any passive loss, is $154,400, so the allowance is zero and $7,000 of loss is suspended. It carries forward to offset future passive income and is released in full when she sells the condominium in a taxable sale.
Her choices could change the result. If her modified AGI fell below $100,000, for example by contributing more to a pre-tax retirement plan, part of the allowance would return. If she qualified as a real estate professional, by spending more than half her working hours and over 750 hours a year in real property businesses, the rental would not be passive at all, but her full-time job rules that out.
Part C: Taxable Income, Tax and Credits
Ordinary tax uses the head of household brackets: $1,655 on the first $16,550, $5,586 at 12 percent up to $63,100, $8,228 at 22 percent up to $100,500 and $4,704 at 24 percent on the last $19,600. Her ordinary income already fills the zero rate band for capital gains, so all $12,400 is taxed at 15 percent. The child tax credit is not reduced because her AGI is below the $200,000 phaseout. The dependent care credit falls to the 20 percent floor at her income. The lifetime learning credit for a graduate course she took is lost, because it phases out between $80,000 and $90,000 of modified AGI. The 3.8 percent net investment income tax does not apply below $200,000.
| 2024 | Amount |
|---|---|
| Wages | $142,000 |
| Net long-term capital gain | 10,000 |
| Qualified dividends | 2,400 |
| Passive income less allowed passive loss | 0 |
| AGI | 154,400 |
| Head of household standard deduction | (21,900) |
| Taxable income | 132,500 |
| Tax on $120,100 of ordinary income | 20,173 |
| Tax on $12,400 of gains and dividends at 15 percent | 1,860 |
| Tax before credits | 22,033 |
| Child tax credit | (2,000) |
| Child and dependent care credit, 20 percent of $3,000 | (600) |
| Residential clean energy credit, 30 percent of $15,000 | (4,500) |
| Income tax | $14,933 |
References
Dowd, T., McClelland, R., & Muthitacharoen, A. (2015). New evidence on the tax elasticity of capital gains. National Tax Journal, 68(3), 511-544. https://doi.org/10.17310/ntj.2015.3.02
Internal Revenue Service. (2023). Revenue Procedure 2023-34: Inflation adjusted items for 2024.
Spilker, B. C., Ayers, B. C., Outslay, E., Weaver, C. D., Barrick, J. A., Robinson, J. R., & Worsham, R. G. (2019). Taxation of individuals and business entities. McGraw-Hill Education.
What the ACC 6060 Module 3 instructions ask for
In Module 3 the return grows to include investment sales, rental activity and the credits that reduce tax directly. Typical items classify assets, fix holding periods and basis, net results into rate groups, apply the $3,000 annual loss limit with carryovers, run losses through the at-risk and passive tests and compute credits after phaseouts, noting which are refundable. Renata's figures are made up for teaching and follow 2024 rules; 2025 legislation altered some credits, so confirm the year in your own set. Expect at least one problem that asks whether a loss is limited by basis, at-risk or passive rules.
How this ACC 6060 Module 3 example is built
The introduction sets the order of work for the return. The facts are stated once. Part A nets four sales into groups in a table and explains how the short-term loss is applied, with evidence on how realizations respond to rates. Part B applies the passive rules step by step: passive income first, then the special allowance and its phaseout, ending with the suspended loss and when it is released. Part C carries everything to taxable income, splits ordinary and preferential tax, subtracts three credits and explains which credits and surtaxes do not apply and why. Each step names the Code limit it applies.
Where the marks sit in the ACC 6060 Module 3 rubric
Like each of its siblings, this capital gains set is worth 7 points toward the final mark. For this module, mentors check that gains and losses are grouped and netted in the right order, that preferential rates are applied only to the right income, that passive losses are limited correctly with the special allowance and its phaseout computed from the right income measure, and that credits are applied after tax with phaseouts tested. Showing the arithmetic for each bracket and each limit, and explaining which provisions do not apply, earns full credit and partial credit when a number slips. Mentors also check that the dependent care and clean energy credits are computed from the right base and that the lifetime learning credit's phaseout is tested. Mentors also check that the head of household brackets, not the single brackets, are used for the ordinary income computation.
ACC 6060 Module 3 help: mistakes that cost marks
Errors here usually come from netting all gains and losses together without rate groups, applying the special allowance without checking modified AGI and treating credits as deductions. Group transactions by holding period and rate first. Compute modified AGI before passive losses to test the allowance. Subtract credits from tax, not income, and check each credit's phaseout. Lay out the netting in a table by group before computing tax, so the order of offsets is visible to the grader. A free first sample of your own ACC-6060 Module 3 problems is available on request.
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ACC 6060 Module 3 questions, answered
Where can I find a free ACC 6060 Module 3 sample paper?
Renata Albescu's 2024 return problems appear above: capital gain netting by rate group, a suspended rental loss and three credits for a head of household.
How does a net short-term capital loss offset long-term gains?
It offsets the highest-taxed long-term group first, such as 28 percent collectibles gain, then the 15 and 20 percent group.
Why was the rental loss suspended?
Passive losses offset only passive income, and the $25,000 rental allowance phases out completely once modified AGI reaches $150,000.
When is a suspended passive loss released?
It offsets future passive income and is released in full when the taxpayer disposes of the activity in a taxable sale.
What is the difference between a tax credit and a deduction?
Deductions shrink the income that is taxed; credits come off the tax bill directly, and refundable credits can produce a refund beyond the tax owed.