Cedar Corporation incurs a net capital loss of $20,000 in year 1 that cannot be deducted on its income tax return but must be carried forward to year 2.Cedar will deduct the net capital loss in the computation of current earnings and profits for year 1.

Question

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According to the IRS, when computing current earnings and profits, net capital losses are deductible even if they cannot be deducted on the income tax return. Therefore, Cedar Corporation will deduct the net capital loss in the computation of current earnings and profits for year 1.

Cedar Corporation Incurs a Net Capital Loss of $20,000 in Year