Constance owns a boutique.During the current year,she has gross income of $400,000 and allowable deductions related to the business of $425,000.
I.Constance has incurred a transaction loss,which represents her unrecovered cost of capital.
II.Constance has suffered an annual loss,which may be carried back 2 years or forward 20 years if not used in the current year.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question

Constance owns a boutique.During the current year,she has gross income of $400,000 and allowable deductions related to the business of $425,000.
I.Constance has incurred a transaction loss,which represents her unrecovered cost of capital.
II.Constance has suffered an annual loss,which may be carried back 2 years or forward 20 years if not used in the current year.
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A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Quizplus · Accepted Answer

Statement II is correct as a business loss can be carried back for two years or forward for 20 years if not used in the current year. However, statement I is not applicable as it does not provide any specific information regarding the transaction loss, which may or may not represent Constance's unrecovered cost of capital.

Constance Owns a Boutique