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44.a.If Goshawk is a proprietorship, only $21,000 of the $40,000 long-term capital loss can bededucted in the current year. The loss will offset the short-term capital gain of $18,000first; then, an additional $3,000 of the loss may be utilized as a deduction againstordinary income. The remaining $19,000 net capital loss is carried forward to next yearand years thereafter until completely deducted. The capital loss carryover retains itscharacter as long term.
b.If Goshawk is a C corporation, only $18,000 of the long-term capital loss can bededucted 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 againstordinary income. The $22,000 net capital loss can be carried back to the three precedingyears to reduce any net capital gains in those years. (The loss is carried back three yearsand forward five years.) Any loss not offset against net capital gains in the three previousyears can be carried forward for five years, to offset capital gains in those years. Thelong-term capital loss will be treated as a short-term capital loss as it is carried back andforward. 45.a.Net short-term capital gain $ 15,000Net 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 itback to the three preceding years, applying it against net capital gains in 2011, 2012, and2013, in that order. The net capital loss is carried back or forward as a short-term capitalloss.b.2014 net capital loss ($90,000)Offset against2011 (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 ofcapital 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 (aslong-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 adjustmentis equal to 20% of the excess of the amount of depreciation recapture that would arise ifthe property was § 1245 property over the amount of deprecation recapture computedunder § 1250 (without regard to § 291).First, determine the recognized gain:Sales price$850,000Less adjusted basis:Cost of property$650,000Less cost recovery(287,492)(362,508)Recognized gain$487,492Second, 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$287,492Less § 1250 recapture amount(–0–)Excess § 1245 recapture potential$287,492 Apply § 291 percentage20%Additional ordinary income under § 291$ 57,498