Question

Goose Corporation, a C corporation, incurs a net capital loss of $12,000 for 2019. It also has ordinary income of $10,000 in 2019. Goose had net capital gains of $2,500 in 2015 and $5,000 in 2018. If an amount is zero, enter "0". a. Determine the amount, if any, of the net capital loss of $12,000 that is deductible in 2019. $ b. Determine the amount, if any, of the net capital loss of $12,000 that is carried forward to 2020.

Answer 1

Answer:

a. 0

b. $7,000

Explanation:

In relation to capital losses of corporation, sections 1211 and 1212 of the Internal Revenue Code (IRC) states that:

• Capital losses of corporation are not allowed to be deducted from ordinary income.

• Corporations can only the deduct capital losses up to the amount of the capital gains from other assets for that year.

• Any remaining capital losses that have not been deducted due to no more capital gains may be carried back for three years and  carried forward for five years.

From the above therefore,

a. Zero amount of the net capital loss of $12,000 is deductible in 2019, because there is no capital gains recorded in 2019 and it cannot be deducted from the ordinary income of 2019.

b. Since corporations are allowed to carried back for three years and  carried forward for five years, the amount to carry forward to 2020 will be the difference between capital losses of $12,000 for 2019 and capital gains of $5,000 for 2018 only which $7,000 (i.e. $12,000 - $5,000 = $7,000).