44.
a.
If Goshawk is a proprietorship, only $21,000 of the $40,000 long-term capital loss can be
deducted in the current year. The loss will offset the short-term capital gain of $18,000
first; then, an additional $3,000 of the loss may be utilized as a deduction against
ordinary income. The remaining $19,000 net capital loss is carried forward to next year
and years thereafter until completely deducted. The capital loss carryover retains its
character as long term.
b.
If Goshawk is a C corporation, only $18,000 of the long-term capital loss can be
deducted in the current year. The loss deduction is limited to the amount of capital gains
($18,000 STCG). A corporation cannot claim a net capital loss as a deduction against
ordinary income. The $22,000 net capital loss can be carried back to the three preceding
years to reduce any net capital gains in those years. (The loss is carried back three years
and forward five years.) Any loss not offset against net capital gains in the three previous
years can be carried forward for five years, to offset capital gains in those years. The
long-term capital loss will be treated as a short-term capital loss as it is carried back and
forward.
45.
a.
Net short-term capital gain
$
15,000
Net long-term capital loss
(105,000)
Net capital loss
($
90,000)
Gorilla cannot deduct the net capital loss of $90,000 on its 2014 return, but must carry it
back to the three preceding years, applying it against net capital gains in 2011, 2012, and
2013, in that order. The net capital loss is carried back or forward as a short-term capital
loss.
b.
2014 net capital loss
($90,000)
Offset against
2011 (net long-term capital gains)
2012 (net short-term capital gains)
2013 (net long-term capital gains)
Total carrybacks
c.
$27,000 ($90,000 – $63,000) STCL carryforward to 2015, 2016, 2017, 2018, and 2019,
in that order.
d.
These transactions are netted with the taxpayer’s other capital transactions for 2014.
Assuming these are the only capital transactions in 2014, the taxpayer offsets $15,000 of
capital gains against the capital losses and deducts an additional $3,000 in capital losses.
The remaining $87,000 ($105,000 – $15,000 – $3,000) is carried forward indefinitely (as
long-term capital loss).
46.
a.
Under § 291, a corporation will incur an additional amount of depreciation recapture
(ordinary income) upon a disposition of § 1250 property for a gain. The § 291 adjustment
is equal to 20% of the excess of the amount of depreciation recapture that would arise if
the property was § 1245 property over the amount of deprecation recapture computed
under § 1250 (without regard to § 291).
First, determine the recognized gain:
Sales price
$850,000
Less adjusted basis:
Cost of property
$650,000
Less cost recovery
(287,492)
(362,508)
Recognized gain
$487,492
Second, determine the § 1245 recapture potential. This is the lesser of $487,492
(recognized gain) or $287,492 (cost recovery claimed).
Third, determine the normal § 1250 recapture amount:
Cost recovery taken
$ 287,492
Less straight-line cost recovery
(287,492)
§ 1250 ordinary income
$
–0–
Fourth, determine the additional § 291 amount:
§ 1245 recapture potential
$287,492
Less § 1250 recapture amount
(–0–)
Excess § 1245 recapture potential
$287,492
Apply § 291 percentage
20%
Additional ordinary income under § 291
$
57,498
