corporation deduction of capital losses

Vote for corporation deduction of capital losses
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Rivkah Schweke

Please ask your question here:
Am I correct in saying that to solve this problem, we do nothing more than add the total of all the capital gains from all 3 years (5,000, 1,000 and 3,000) and subtract that from the net capital loss of 10,000, for a total of $1,000 (answer D)?  And all the other information is not necessary to solve the problem?  Thanks for your time!

Original Fast Forward Academy test bank question:
In 2011, Capital Corporation reports gross profits of $150,000, deductible expenses of $28,000, and a net capital loss of $10,000. Capital reported the following net capital gains during 2008-2010:

Year : Net Capital Gains
2008 : $5,000
2009 : $1,000
2010 : $3,000

What is the amount of Capital's capital loss carryover to 2012?

A. $10,000
B. $7,000
C. $5,000
D. $1,000

Explanation:
A corporation can deduct capital losses only up to the amount of its capital gains. In other words, if a corporation has an excess capital loss, it cannot deduct the loss in the current tax year. Instead, it carries the loss to other tax years and deducts it from any net capital gains that occur in those years.

A capital loss is carried to other years in the following order.

  1. 3 years prior to the loss year.
  2. 2 years prior to the loss year.
  3. 1 year prior to the loss year.
  4. Any loss remaining is carried forward for 5 years.

When you carry a net capital loss to another tax year, it is treated as a short-term loss. It does not retain its original identity as long term or short term.

FFA EA Book Reference: CH 13 Corporations
Subsection: Business income
Subject: Net income, net operating losses, and loss limitations including passive activity and at risk limitations
Correct Answer: D


Novice Level Question
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