Question

Ostrich, a C corporation, has a net short-term capital gain of $20,000 and a net long-term capital loss of $90,000 during 2019. Ostrich has $425,000 in taxable income from other sources. Prior years’ transactions included the following:

2014 net short-term capital gains $10,000 2015 net long-term capital gains 18,000 2016 net long-term capital gains 15,000 2017 net short-term capital gains 25,000 2018 net long-term capital gains 5,000

Required: a. How are the capital gains and losses treated on Ostrich’s 2019 tax return? b. Determine the amount of capital loss, if any, to be carried forward. Indicate the nature of the capital loss carried forward and the years to which the loss would be carried forward.   

Answer 1

a. Short-term capital gain = 20,000$

Long-term capital loss = 90,000$

Net capital loss = 70,000$

Out of the net capital loss of 70,000$, 3,000$ can be used to set-off the other income of 425,000$ and the rest of the loss of 67,000$ is to be carried forward to the future years.

b. The amount of carry forward of capital loss is 67,000$ out of which 3,000$ can be set-off from other income every year in the future periods. However, if there is a gain in any of the future years, then such gain can be set-off from such capital loss.

For example : let's assume there is a capital gain in the next year of 75,000$, then whole 67,000$ can be set-off against such capital gain in the next year itself.

Now let's assume there is a capital gain of 75,000$ in 2021 and there are no gains in 2020. Now, Ostrich can set-off 3,000$ of capital loss in 2020 against other income. And in 2021, Ostrich can set-off 64,000$ against the capital gain of 75,000$.