A C Corporation had 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 $0 in Year 3. What is the amount of capital loss carryforward to Year 5?

Answer options:

$20,000

$7,000

$15,000

How to approach this question

Corp Capital Loss Rule: Carry BACK 3 years, then FORWARD 5 years. Use it against Year 1, then Year 2. $20k - $5k - $8k = $7k left.

Full Answer

B.$7,000✓ Correct

Corporations must carry back capital losses 3 years and then forward 5 years. The $20,000 loss is applied first to Year 1 ($5,000) and Year 2 ($8,000). Total used = $13,000. Remaining carryforward = $20,000 - $13,000 = $7,000.

Common mistakes

Applying Individual rules (no carryback, indefinite carryforward) to a C Corp.

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