ExpertMedium1 markMultiple Choice
CPA · Question 50 · Area 3: Entity Tax Compliance
A C Corporation has a net capital loss of $10,000 in Year 4. It had capital gains of $5,000 in Year 1, $2,000 in Year 2, and $0 in Year 3. How is the loss used?
A C Corporation has a net capital loss of $10,000 in Year 4. It had capital gains of $5,000 in Year 1, $2,000 in Year 2, and $0 in Year 3. How is the loss used?
Answer options:
A.
Deduct $3,000 in Year 4; Carryforward remainder.
B.
Carryback to Year 1 ($5,000) and Year 2 ($2,000); Carryforward $3,000.
C.
Carryforward $10,000 only.
D.
Deduct $10,000 in Year 4.
How to approach this question
1. Corp Capital Loss Rule: Carry back 3 years, Carry forward 5 years.<br/>2. Apply Carryback: <br/> - Year 1: Use $5,000. Remaining Loss $5,000.<br/> - Year 2: Use $2,000. Remaining Loss $3,000.<br/> - Year 3: $0.<br/>3. Carryforward: $3,000 to Year 5+.
Full Answer
B.Carryback to Year 1 ($5,000) and Year 2 ($2,000); Carryforward $3,000.✓ Correct
B
The corporation must carry the loss back to the earliest of the 3 preceding years (Year 1) first, then Year 2, then Year 3. $5,000 + $2,000 = $7,000 used. $3,000 remains to be carried forward.
Common mistakes
Confusing corporate rules with individual rules ($3k deduction or no carryback).
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