NOLs and Capital loss limitations

Question 1

As a result of a Section 382 ownership change in year 1, Alex Corp has a $25,000 annual Section 382 limitation that applies to the deduction of its pre-change NOLs against taxable income in future years. Alex Corp’s pre-change NOL carryforwards from year 1 total $100,000. In Year 2, Alex Corp has net income of $20,000. What is the amount of Alex Corp’s Year 3 Section 382 limitation amount?
a. $30,000
b. $25,000
c. $20,000
d. $0

Answer 1

A. $30,000
The Section 382 limitation amount is an annual limitation that applies to the deduction of pre-change NOL carryforwards against future taxable income. If the limitation amount if greater than the taxable income amount for the year the unused Section 382 limitation is carried forward and increases the next year’s limitation amount. Alex Corp’s annual Section 382 limitation amount of $25,000 is greater than the Year 2 taxable income of $20,000. Alex corp can deduct $20,000 of the pre-change NOL carryfwd in Year 2 but the unused amount of $5,000 is carried forward and will increase the Year 3 Section 382 limitation from the annual $25k to $30,000.

Question 2

Fox, the sole shareholder in Fall, a C corp, has a tax basis of $60k. Fall has $40k of accumulated positive E&P at the beginning of the year and $10k of current positive E&P for the current year. At year end, Fall distributed land with an adjusted basis of $30k and a FMV of $38k to Fox. The land has an outstanding mortgage of $3k that Fox must assume. What is Fox’s tax basis in the land?
a. $38,000
b. $35,000
c. $30,000
d. $27,000

Answer 2

A. $38,000
if the shareholder is an individual, the taxable amount of a property dividend from a corp’s E&P is the FMV of the property received. The recipient-shareholder’s basis in the property distributed is also the FMV of the property. In this case, the shareholder is also assuming the mortgage on the property, but this only affects the amount of taxable income, the debt does not affect the basis of the land received.
note: $35,000 is the amount of the taxable income on the dividend that this shareholder would be faced with as a result of the property received and debt assumed

Question 3

Lilac corp, a C corp with E&P, redeemed shares of stock from an individual shareholder. The distribution in redemption of stock will likely result in dividend income treatment to the redeeming shareholder if:
a. the redemption is proportionate with respect to the shareholder
b. the redemption is due to a complete liquidation of the corporation
c. the redemption is due to a partial liquidation of the corp
d. the redemption results in a complete termination of the shareholder’s interest in the corp

Answer 3

a. a stock redemption that is proportionate with respect to eh shareholder is treated as a dividend to the redeeming shareholder.
note: all other answer choices are treated as an exchange of stock, not as a dividend.

Question 4

what is the usual result to the shareholders of a distribution in a complete liquidation of a corporation?
a. no taxable effect
b. ordinary gain to the extent of cash received
c. ordinary gain or loss
d. capital gain or loss

Answer 4

D. shareholders treat property received in a complete liquidation of a corporation as a full payment for their stock. Therefore, the shareholder must recognize capital gain or loss equal to the difference between the FMV of the property received and the basis of the stock surrendered

Question 5

which of the following itemized deductions are added back to regular taxable income to calculate alternative minimum taxable income (AMTI)?
a. medical expenses
b. real estate taxes
c. home mortgage interest
d. charitable contributions

Answer 5

b. taxes deducted as part of itemized deductions, including income, sales, real estate, and personal property taxes, are an adjustment that is added back to regular taxable income to calculate AMTI.
a,c, and d, are not adjustments for purposes of calculating AMTI

Question 6

when calculating AMTI, an individual taxpayer may take a deduction for which of the following items?
a. standard deduction
b. percentage depletion in excess of adjusted basis of property
c. casualty loss from a federally declared disaster
d. person property taxes on a personal vehicle

Answer 6

c. a casualty loss from a federally declared disaster is an itemized deduction that is allowed for calculating both regular taxable income and AMTI.
a, b, and d, are not allowable deductions in calculating AMTI

Question 7

an individual’s suspended passive activity losses can be carried:

Answer 7

forward, but not back, until utilized.