Final answer:
An individual can use capital losses to offset capital gains and potentially eliminate their tax liability. The amount of losses that can be used to offset ordinary income is limited. For corporations, the rules for capital losses are slightly different, and they can carry losses back to previous years to obtain refunds.
Step-by-step explanation:
When an individual has capital gains in one year and capital losses in another year, they can use the losses to offset the gains and reduce their overall tax liability. In the given scenario, the individual has $1,000,000 of capital gains in 2017 and $1,000,000 of capital losses in 2018. They can use the losses to offset the gains and potentially eliminate their tax liability for 2017. If the losses exceed the gains, the individual can carry the remaining losses forward to future years and use them to offset future capital gains. However, there is a limit on the amount of capital losses that can be used to offset ordinary income in a single year, which is currently $3,000 for individuals or $1,500 for married filing separately.
If the individual were a corporation instead of an individual, the rules for capital losses are slightly different. Corporations can also use their capital losses to offset their capital gains and potentially reduce their tax liability. However, unlike individuals, corporations can carry their capital losses back to previous years and potentially obtain a refund of taxes paid in those years. If the losses cannot be fully utilized in the current year or carried back to previous years, the corporation can carry them forward to future years and use them to offset future capital gains.