CPA Exam — REG (Regulation)Federal Taxation of EntitiesEasy
A client, a C corporation, realized a gain of $75,000 from the sale of land held for investment. It also incurred a loss of $100,000 from the sale of marketable securities. What is the corporation's capital loss deduction for the current year?
- A$25,000
- B$100,000
- C$3,000
- D$0
Show answer & explanationAnswer & explanation
Correct answer: D. $0
C corporations cannot deduct net capital losses against ordinary income. Capital losses can only be offset against capital gains. Any excess capital loss is carried back three years and forward five years.
Why the other options are wrong
- A. This represents the net capital loss, which is not deductible against ordinary income for a C corporation.
- B. This is the total capital loss, but it cannot be fully deducted against ordinary income.
- C. This limit applies to individual taxpayers, not C corporations.
C Corp Capital Loss Deduction
C corporations can only deduct capital losses to the extent of capital gains. Net capital losses cannot be deducted against ordinary income.
- No deduction against ordinary income for net capital losses.
- Capital losses are carried back 3 years and forward 5 years.
- Applies strictly to C corporations.
Memory trick: Corporate Capital Losses: Only Gains Can Catch Them!