T2-M1 NOL and Capital Losses Flashcards

1
Q

what are NOL carryback and carryforward rules?

A
  • NOL rule prior to 2018 (2017 and earlier):
    + NOLs can be carried back 2 years and carried forward 20 years
    + NOLs carryforwards can offset 100% of future taxable income (TI)
  • NOL rule for 2018, 2019, and 2020:
    + NOLs for 2018, 2019, and 2020 can be carried back 5 years and carried forward forever
    + NOL carryforward can offset:
    a. 100% of TI for 2018, 2019, and 2020; and
    b. 80% of TI for 2021 and future years after deducting pre-2018 NOL carryforwards
  • NOL rule for 2021 and into the future:
    + NOLs cannot be carried back but can be carried forward forever
    + can offset 80% of TI for 2021 future years after deducting pre-2018 NOL carryforwards
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

what are other rules about NOLs?

A
  • No charitable contribution is allowed in the year incurred NOL
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

what are the limitations on NOL carryforward following an ownership change (section 382)?

A
  • when a corp acquired a loss corp, the amount of TI that may be offset by the NOL of the loss corp arising before the ownership change is limited
  • Congress enacted section 382 to prevent a corp with a large TI from:
    + purchasing a company with NOL carryforwards; and
    + using those NOLs to offset income
  • section 382 loss limitations are triggered by an “ownership change.” when 1 or more “5% shareholders” increase their aggregate (total) ownership of the loss corp’s stock by more than 50% over the lowest stock % owned by those shareholders during testing period (3-year period ending on but include the date of the change in ownership)
  • section 382 limitation = FMV of the loss corp’s stock (right before ownership change) x federal LT tax exempt rate (rate published by internal Revenue Bulletin)
  • Unused NOLs are carryforward and increase the next year’s limitation amount
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

what are taxation on capital losses?

A
  • $3K deduction for net capital losses is available for individuals (not allowed to corps)
  • Corps can only use capital losses to offset capital gains
  • Capital losses are carried back 3 years and forward 5 years as STCL
  • in calculation, do capital losses to offset capital gains first before other calcs
How well did you know this?
1
Not at all
2
3
4
5
Perfectly