Question

Evans corporation has a $15,000 net capital loss in 2017. The corporation reported the following capital gain netting in income during the past three years. Identify which of the following statements is true

Year Capital gain net income
14 $10000
15 $11000
16 $5000
A) The loss is used to offset the $11,000 of the 2015 gains and then carried back to offset $4,000 of the year 2014 net gain.
B) The loss is used to offset the gains from 2016 and then carried back to offset $10,000 of the gains in 2014.
C) The loss is used to offset $3,000 of 2014 , 2015 and 2016 capital gains, remaining amount carried forward at $3,000 a year until expired.
D) The loss is used to offset the year 2014 net gains, then $5,000 of the year 2015 net gains.

Answer 1

The loss is used to offset $3,000 of 2014, 2015, and 2016 capital gains, with the remaining amount carried forward at $3,000 a year until expired. The correct option is c.

Step-by-step explanation:

The correct statement is: C) The loss is used to offset $3,000 of 2014, 2015, and 2016 capital gains, remaining amount carried forward at $3,000 a year until expired.

According to the information provided, the corporation has a net capital loss of $15,000 in 2017. To determine how the loss is used to offset the capital gain net income from previous years, we look at the options:

1. Option A: The loss is used to offset the $11,000 of the 2015 gains and then carried back to offset $4,000 of the year 2014 net gain. This option does not use any of the $10,000 gain from 2016.
2. Option B: The loss is used to offset the gains from 2016 and then carried back to offset $10,000 of the gains in 2014. This option does not mention using any of the gains from 2015.
3. Option C: The loss is used to offset $3,000 of 2014, 2015, and 2016 capital gains, with the remaining amount carried forward at $3,000 a year until expired. This option utilizes all three years of capital gains.
4. Option D: The loss is used to offset the year 2014 net gains, then $5,000 of the year 2015 net gains. This option does not mention using any of the gains from 2016.

Based on the given options and the information, Option C is the correct statement. The loss of $15,000 is used to offset $3,000 of capital gains from each of the years 2014, 2015, and 2016, with any remaining amount carried forward at $3,000 a year until expired. The correct option is c.