CPA Exam — REG (Regulation)Federal Taxation of EntitiesMedium
A client, a C corporation, incurred a net capital loss of $20,000 in 2023. In 2021, the corporation had a net capital gain of $5,000, and in 2022, it had a net capital gain of $12,000. How much of the 2023 net capital loss can the corporation carry back to 2021?
- A$0
- B$3,000
- C$20,000
- D$5,000
Show answer & explanationAnswer & explanation
Correct answer: D. $5,000
C corporations can carry back net capital losses three years and carry forward five years. The loss must be carried back to the earliest year first. In this case, the earliest year with a capital gain is 2021, with a $5,000 gain. Thus, $5,000 of the 2023 loss can be carried back to 2021.
Why the other options are wrong
- A. Incorrect; C corporations are allowed to carry back capital losses.
- B. Incorrect calculation; the carryback is limited to the capital gain in the carryback year.
- C. Incorrect; the carryback is limited to the capital gain in the carryback year, not the full loss.
C Corp Capital Loss Carryback
C corporations can carry back net capital losses three years and carry forward five years to offset capital gains in those years.
- Losses are carried back to the earliest year first.
- The carryback amount cannot exceed the capital gain of the carryback year.
- Carrybacks and carryforwards retain their character as short-term or long-term.
Memory trick: Three Back, Five Forward, First Gain Gets Funds.