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:

Carry forward all $20,000.

Carry back to Year 3 only.

Carry back to Year 1 ($5,000), Year 2 ($8,000), Year 3 ($2,000), and carry forward $5,000.

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. Year 1: Use $5,000. Year 2: Use $8,000. Year 3: Use $2,000. Total Used = $15,000. Remaining $5,000 carried forward to Year 5.

Common mistakes

Confusing with individual rule ($3k deduction) or NOL rules.

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