Chapter 7, Problem 11DQ

To determine

State the limitations on the deductibility of capital losses by individuals and compare with those for corporations.

Capital losses of individuals are adjusted against other capital gains of the individuals during that particular year. When the result of adjusting is a loss then the individual can deduct to a maximum of $3,000 from the net capital loss. Any other excess losses are carried forward and can be used in the next year’s capital gain and loss adjusting.

Corporations also net together capital losses and capital gains however, if it results in a net capital loss, then loss is not deductible in the period in which it is incurred.  The net capital loss can be carried back to 3 years and be adjusted against any net capital gains on which the corporation paid tax to obtain a refund of the taxes which are paid.  If the carryback period is not sufficient to absorb the loss completely then any remaining loss can be carried forward for next 5 years and used to offset capital gains.