Question

In 2021, 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 will have taxable income in 2021 of $100,000 and will have a net capital loss of $15,000 that can be carried back 3 years and forward 5 years.
b. Bluebird Corporation will have taxable income in 2021 of $85,000.
c. 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.
d. Bluebird Corporation may deduct $33,000 of the capital loss in 2021 and may carry forward the remainder of the capital loss indefinitely to offset capital gains.

Answer 1

Step-by-step explanation:

To determine the correct statement, let's analyze the given information:

Net income from operations = $100,000

Long-term capital gain = $30,000

Short-term capital loss = $45,000

To calculate the taxable income and the net capital loss, we need to combine the net income from operations and the net capital gains/losses.

1. Net capital gain/loss:

Net capital gain/loss = Long-term capital gain - Short-term capital loss

Net capital gain/loss = $30,000 - $45,000 = -$15,000 (a net capital loss of $15,000)

2. Taxable income:

Taxable income = Net income from operations + Net capital gain/loss

Taxable income = $100,000 + (-$15,000) = $85,000

So, the correct statement is:

b. Bluebird Corporation will have taxable income in 2021 of $85,000.

The taxable income is $85,000, and the net capital loss is $15,000.