Question

Answers without showing calculations/explanations, will not receive credit. a) Pure Action Cycles Incorporated, a bicycle manufacturer, has a net capital loss in 2022 of $(67,000). It had net capital gains of $21,350 in 2021, $46,500 in 2020,$10,300 in 2019 (but suffered a net operating loss in 2019), and $8,300 of net capital gain in 2018. What is the net capital gain in 2021 after the carryback is applied?

Answer 1

After applying the capital loss carryback from 2022, the net capital gain for Pure Action Cycles Incorporated in 2021 remains unchanged at $21,350, because the previous years' gains do not fully cover the loss.

Step-by-step explanation:

The question is about calculating the adjusted net capital gain for Pure Action Cycles Incorporated for the year 2021 after applying a carryback of capital losses from 2022. The company has a net capital loss of $(67,000) in 2022, which can be carried back to offset net capital gains in previous years. Starting with the earliest year within the carryback period, the 2022 loss is first applied to the gain in 2018, and any remaining loss can then be applied to subsequent years. However, as the gains from 2018 to 2020 do not amount to the total loss of 2022, all these gains would theoretically be wiped out, leaving the gain in 2021 unaffected.

Therefore, after applying the carryback, the net capital gain in 2021 remains at $21,350, since the total gains from 2018 to 2020 do not cover the entire capital loss carryback of 2022.