Answer:
a) If Goshawk is a proprietorship, only $21000 long-term capital loss can be deducted in the current year. The remaining $19000 net capital loss is carried forward and then carried back
b) If Goshawk is a C corporation, only $ 18000 long-term capital loss can be deducted in the current year. The remaining $22000 net capital loss is carried back and then forward of Item 2.
Explanation:
The gain or loss on the sale of a property is said to be the difference between between the realized value of goods and its adjusted basis. When there is a gain the realized value would be greater than the adjusted basis, while when there's loss the realized value would be less than the adjusted basis.
A) In this case, if Goshawk is a proprietorship, only $21,000 of the $40,000 long-term capital loss can be deducted in the current year. The loss will offset the short-term capital gain of $18,000 first; then, an additional $3,000 of the loss may be utilized as a deduction against ordinary income. The remaining $19,000 net capital loss is carried forward to next year and years thereafter until completely deducted. The capital loss carryover retains its character as long term.
B) If Goshawk is a C corporation, $18,000 short term capital gain can be set off for long term capital loss. Then the remaining $22,000($40,000 - $18,000) will be carried backwards
