[jessanqi]

Can someone advise below question.. I don’t really understand why the fire loss is required for individuals. and also, can NOL offset with capital gains?

Thank you!!!

During 20X4, its first year of operations, Emma Corporation had a loss from operations of $38,000 and short-term capital gains of $12,000. Included in the loss from operations was a fire loss of $7,000. Emma has a net operating loss carryover from 20X4 of 

The correct answer is B. In determining net operating loss, a corporation does not need to make adjustments for capital gains and losses as is required of individuals. Therefore, since Emma had an operating loss of $38,000 and net short-term capital gains of $12,000, its net operating loss carryover would be $26,000 ($38,000 – $12,000).  

[aaronmo]

I don't understand your question, but losses are different for individuals vs. corps. A corp can declare the loss as, effectively, an expense. Off set by insurance and measured by required standard. Individuals declare losses as misc. expenses subject to a floor of $100 and a percentage of AGI.

I'm not sure where you're confused, but, as I understand it, the answer is correct. The fire part is a distractor…you have a 38k loss applied to 12k capital gains, which for a corp. are just offset. So you'd carry forward or back a loss of 26000.

[jessanqi]

Thank you so much for the explanation!

I think I'm confused with the distraction of the fire loss $7,000, I should've read the question more carefully.

Also just want to make sure that the NOL can be offset with the capital gains.

Thanks again!:)

[Anonymous]

When you have a current year loss, prior year loss won't matter. However, if the current year had been a wipe of $0 profit or loss, then I believe the capital gains could be offset by the prior year NOL. The prior year NOL, like the fire loss, were just thrown in to distract and confuse.

[ninjacpa_hck]

NOL can be used to offset Capital Gains? Just want to clarify!

[waffle_house]

“NOL can be used to offset Capital Gains?” Don't think about it like that. Just know that capital gains are added to ordinary income but capital losses cannot offset ordinary income (no $3,000 deduction for capital loss like an individual).

Remember Capital losses (corp and individual) = carry back 3 years / carry forward 5years
Net Operating Loss = Carry back 2 years / Carry forward 20 years

[Author]

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