Question

Alto Corporation sold two capital assets this year. The first sale resulted in a $13,000 capital gain, and the second sale resulted in a $41,000 capital loss. Alto was incorporated five years ago. Four years ago, Alto recognized $5,000 of net capital gain. Three years ago, Alto recognized $10,000 of net capital gain. Two years ago and last year, Alto recognized no net capital gains.

Required:
Using a 21 percent tax rate, compute Alto's tax refund from the carryback of its current year capital loss. Compute Alto's capital loss carryforward into next year.

Answer 1

A. Tax refund $2,100

B. $18,000

Step-by-step explanation:

A. Calculation for Alto's tax refund from the carryback of its current year capital loss

Based on the information given we were told that Alto has the amount of $28,000 ( 13,000-41,000) as a net capital loss that is non deductible this year which means Alto can

carry the loss back 3 years in order for Alto to deduct against net capital gain in those 3years.

Secondly Alto can as well remove the amount of $10,000 capital loss that was carryback against capital gain 3 years ago in order to have the amount of $2,100 as tax refund which is calculated as ($10,000 × 21%)

B. Computation of Alto's capital loss carryforward into next year.

Alto’s capital loss carryforward = ($28,000 − $10,000).

Alto’s capital loss carryforward =$18,000

Therefore Alto’s capital loss carryforward will be $18,000