ExpertMedium1 markMultiple Choice
CPA · Question 51 · Area III: Entity Tax Planning
A C Corporation has a net capital loss of $20,000 in Year 4. It had capital gains of $5,000 in Year 1, $8,000 in Year 2, and $2,000 in Year 3. What is the optimal use of the loss?
A C Corporation has a net capital loss of $20,000 in Year 4. It had capital gains of $5,000 in Year 1, $8,000 in Year 2, and $2,000 in Year 3. What is the optimal use of the loss?
Answer options:
A.
Carry forward all $20,000.
B.
Carry back to Year 3 only.
C.
Carry back to Year 1 ($5,000), Year 2 ($8,000), Year 3 ($2,000), and carry forward $5,000.
D.
Deduct $3,000 against ordinary income and carry forward the rest.
How to approach this question
Corp Capital Loss Rule: Back 3, Forward 5. Must go to earliest year first.
Full Answer
C.Carry back to Year 1 ($5,000), Year 2 ($8,000), Year 3 ($2,000), and carry forward $5,000.✓ Correct
IRC §1212(a). Corporate capital losses are carried back 3 years and forward 5 years. <br/>Year 1: Use $5,000. <br/>Year 2: Use $8,000. <br/>Year 3: Use $2,000. <br/>Total Used = $15,000. <br/>Remaining $5,000 carried forward to Year 5.
Common mistakes
Confusing with individual rule ($3k deduction) or NOL rules.
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