Goose Corporation, a C corporation, incurs a net capital loss of $12,000 for 2016. It also has ordinary income of $10,000 in 2016. Goose had net capital gains of $2, 500 in 2012 and $5,000 in 2015.

a. Determine the amount, if any, of the net capital loss of $12,000 that is deduct ible in 2016.

b. Determine the amount, if any, of the net capital loss of $12,000 that is carried forward to 2017

a) $0 of the net capital loss is deductible in 2016

b) $7,000

Explanation:

a) $0 of the net capital loss is deductible in 2016

First, it should be noted that only individuals are allowed to charge/deduct any capital losses against their ordinary income, corporate organisations are not allowed to do so. Corporate firms are only allowed to deduct their capital losses from their capital gains, therefore if there are no capital gains or the gains are insufficient, then no amount of net capital loss can be charged.

Since Goose Corporation has no capital gain it means that the entire $12,000 capital loss cannot be charge or deducted in 2016.

b) To calculate net loss to be carried forward is as follows

Capital loss - net gain in 2015 (the net gain in 2012 cannot be used because it is more than 3 years back before the capital loss)

= $12,000 - $5000 = $7,000

While corporate organisations are permitted to use their current net losses to offset past capital gains (limited to only 3 years). This rule therefore exempts the use of the $2,500 in 2012 to offset the capital loss of 2016