Question

In 2018, Bluebird Corporation had net income from operations of $100,000. Further, Bluebird recognized a long-term capital gain of $30,000, and a short-term capital loss of $45,000. Which of the following statements is correct?

a. Bluebird Corporation may deduct $33,000 of the capital loss in 2018 and may carry forward the remainder of the capital loss indefinitely to offset capital gains.
b. Bluebird Corporation may use the capital loss to offset the capital gain and must carry the net capital loss of $15,000 forward five years as a short-term capital loss.
c. Bluebird Corporation will have taxable income in 2018 of $85,000.
d. Bluebird Corporation will have taxable income in 2018 of $100,000 and will have a net capital loss of $15,000 that can be carried back 3 years and forward 5 years.
e. None of these choices are correct.

Answer 1

Bluebird Corporation may use the capital loss to offset the capital gain and must carry the net capital loss of $15,000 forward five years as a short-term capital loss.

Step-by-step explanation:

The correct statement is option b. Bluebird Corporation may use the capital loss of $45,000 to offset the capital gain of $30,000. This results in a net capital loss of $15,000. According to the tax rules, Bluebird Corporation can carry this net capital loss forward for up to five years as a short-term capital loss.