When using Form 2210 Underpayment of Estimated Tax by Individuals, Estates, and Trusts and you incur a net capital loss, by law this loss is limited to $3,000 for the tax year. When TaxAct® calculates your annualized income on Line 3 of Schedule AI and you are claiming a net capital loss, this loss limitation must be taken into account.
When entering the information into the program, you do not need to make these adjustments. TaxAct will automatically account for the capital loss limitation on Schedule AI. Therefore, on Schedule AI, after entering the cumulative income by quarter, Line 1 will show your total income earned for that period. When converting your quarterly income into your annualized income for Line 3, TaxAct takes into account any capital loss limitation. In such situations, the amount shown on Line 3 will not equal Line 1 multiplied by Line 2.
Example: A net capital loss occurs in the first quarter for $2,000 and other income is received of $7,000. Line 1(a) of Schedule AI would equal $5,000. On Line 3(a), multiply $5,000 by the first quarter multiplier of four, resulting in annualized income of $20,000. However, this would be multiplying the net capital loss of $2,000 by 4, meaning the annualized income figure on Line 3 included a net capital loss of $8,000 ($2000 X 4), and other income of $28,000 ($7,000 X 4). This incorrectly allows a net capital loss of $8,000, instead of limiting the loss to $3,000. The correct calculation of Line 3(a) annualized income is $25,000 ($28,000 total income less capital loss limited to $3,000).
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