A taxable entity has the following capital gains and losses in 2013:
$\begin{array}{lc}
\text { Short-term capital loss } &\$(22,000) \
\text { Long-term capital gain } &15,000
\end{array}$

I If the entity is an individual, a $ \$ 3,000 $ deduction is allowed in 2013 .
II. If the entity is a corporation, a $ \$ 7,000 $ deduction is allowed in 2013 .
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question

A taxable entity has the following capital gains and losses in 2013:
$\begin{array}{lc}
\text { Short-term capital loss } &\$(22,000) \
\text { Long-term capital gain } &15,000
\end{array}$

I If the entity is an individual, a $ \$ 3,000 $ deduction is allowed in 2013 .
II. If the entity is a corporation, a $ \$ 7,000 $ deduction is allowed in 2013 .
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

I is correct because individuals are allowed to deduct up to $3,000 in net capital losses in a year. In this case, the net capital loss is $22,000 - $15,000 = -$7,000, so the individual can deduct $3,000 and carry forward the remaining $4,000 to future years.

II is incorrect because corporations are allowed to deduct up to $0 in net capital losses in a year. Corporations can carry forward capital losses indefinitely, but they cannot use them to offset current year income.