Steve and Holly report the following items for 2019: $\begin{array}{lc}
\text { Dividend income } & \$ 16,000 \
\text { Interest income } & 14,000 \
\text { Itemized deductions (none of the amount resulted from a casualty loss) } & (26,000) \text { Business } \
\text { capital gains } & 2,000 \
\text { Business capital losses } & (10,000)
\end{array}$ In calculating their net operating loss, and with respect to the above amounts only, what amount must be added back to taxable income (loss)?

Question

Quizplus · Accepted Answer

In calculating a net operating loss (NOL), capital losses in excess of capital gains are not deductible. Here, the business capital loss of $10,000 exceeds the business capital gain of $2,000 by $8,000. However, only $3,000 of capital losses can offset other income, so $5,000 of the excess loss is not deductible. Therefore, $5,000 must be added back to the taxable income (loss). Additionally, the itemized deductions of $26,000 must be added back, but since they are not related to a casualty loss, they are not added back for NOL purposes. Thus, the total amount to be added back is $5,000 (from capital losses) + $1,000 (from itemized deductions not related to casualty loss) = $6,000.

Steve and Holly Report the Following Items for 2019 In Calculating Their Net Operating Loss, and with Respect to