M6 NOLs and Capital Loss Limitations Flashcards
MCQ-12704
What are the treatment options for a net operating loss occurring in tax years after December 31, 2017, and before January 1, 2021?
Five-year carryback and indefinite carryforward
Net operating losses occurring in tax years 2018, 2019, and 2020 can be carried back five years and carried forward indefinitely to offset taxable income in other years.
MCQ-14932
A C corporation incurred a $438,000 capital loss in Year 4 and has the following tax information:
Year 4 Year 3 Year 2 Year 1 Capital gain (loss) $(438,000) $11,000 $21,000 $0 Taxable income (loss) 750,000 31,000 17,000 25,000
What amount of capital loss is available for carryover to future tax years?
$410,000
The net capital loss available for carryover to future tax years is $410,000. For C corporations, capital losses can only offset capital gains. A net capital loss is carried back three
years and carried forward five years to offset net capital gains in other years. The net capital loss is carried back to the oldest year in the carryback period first. A net capital loss carryback cannot be carried back to a year if it creates or increases a net operating loss (NOL) for that year.
Year 4 net capital loss $(438,000)
Carryback to offset Year 1 net capital gain 0
Carryback to offset Year 2 net capital gain 17,000 (limited to Year 2 taxable income)
Carryback to offset Year 3 net capital gain 11,000
Net capital loss carryover to Year 5 $(410,000)
MCQ-05271
ParentCo, SubOne, and SubTwo have filed consolidated returns since their inception. The members reported the following taxable incomes (losses) for the year:
ParentCo $50,000
SubOne (60,000)
SubTwo (40,000)
No member reported a capital gain or loss or charitable contributions. What is the amount of the consolidated net operating loss?
$50,000
Net capital losses are not allowable deductions for corporations. A corporation can only use capital losses to offset capital gains. Further, the deduction for charitable contributions may be limited in some cases, and no charitable contribution deduction is allowed in calculating the NOL. The facts of this question indicate that there are no reported capital gains or losses or charitable contributions for any of the consolidated entities; therefore, we know that we are able to use the total income (loss) identified in the facts to calculate the net operating loss. When entities file consolidated income tax returns, 100 percent of their net income (losses) is consolidated. The facts
do not indicate that any inter-company transactions exist; therefore, there are no elimination entries to make before consolidating the net income (loss). The consolidated net operating loss is calculated as follows:
ParentCo. 50,000
SubOne (60,000)
SubTwo (40,000)
Total NOL $50,000
MCQ-15036
The question below includes actual dates that must be used to determine the appropriate tax treatment of the transaction.
The following information applies to a calendar year-end C corporation whose net operating loss was generated in the year ending December 31, 2019:
Net operating loss (NOL) incurred in 2019 $(80,000)
Taxable income in 2018 60,000
Taxable income in 2020 70,000
The corporation’s taxable income in 2018 and 2020 is before consideration of any NOL carrybacks or carryforwards. In this situation, the corporation may utilize its 2019 NOL by offsetting:
All of 2018 taxable income and $20,000 of 2020 taxable income.
The NOL incurred in 2019 can be carried back five years and carried forward indefinitely. There is no taxable income limitation for tax years prior to 2021.
MCQ-01659
A C corporation’s net capital losses are:
Carried back 3 years and forward 5 years.
A C corporation’s net capital losses are carried back 3 years and forward 5 years; they expire after 5 years. In addition, a C corporation cannot deduct net capital losses from ordinary income.
MCQ-02024
How are a C corporation’s net capital losses used?
Carried back three years and forward five years.
A C corporation’s net capital losses are carried back three years and forward five years.
MCQ-04901
Dreamscape, Inc., a widget retailer, had taxable income of $150,000 from operations during its taxable year. In addition, Dreamscape incurred a $35,000 loss from the sale of investment land, a capital asset. No other gains or losses were generated during the taxable year, nor had been in past
years. In Dreamscape’s tax return for that year, what is the proper treatment of the $35,000 loss?
Carry the $35,000 capital loss forward for five years.
Capital gains are taxed at the same rate as ordinary income for a corporation. However, capital losses can only be used to offset capital gains. Any amount not utilized in the year of generation can either be carried back 3 years to offset prior capital gains or carried forward for 5 years.
