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 forward indefinitely

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 forward indefinitely
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Quizplus · Accepted Answer

Statement II is correct, as a business can carry forward losses to offset future profits indefinitely. However, statement I is incorrect because a transaction loss is not related to the cost of capital, but rather represents a loss incurred from a specific transaction or event.

Constance Owns a Boutique