Zeno Inc. sold two capital ass
Zeno Inc. sold two capital assets in 2020. The first saleresulted in a $53,000 capital loss, and the second sale resulted ina $25,600 capital gain. Zeno was incorporated in 2016, and its taxrecords provide the following information:
2016 2017 2018 2019
Ordinary income $443,000 $509,700 $810,300 $921,000
Net capital gain 22,000 0 4,120 13,600
Taxable income $465,000 $509,700 $814,420 $934,600
Required: Compute Zeno’s tax refund from the carryback of its2020 nondeductible capital loss. Assume Zeno’s marginal tax ratewas 34 percent in 2016 and 2017, and 21 percent in 2018 and2019.
Answer:
Zeno has a $27,400 nondeductible net capital loss in 2018. Itcan carry the loss back three years to deduct against net capitalgain in those years. Zeno can deduct $4,120 capital loss carrybackagainst 2016 capital gain and $13,600 capital loss carrybackagainst 2017 capital gain to generate a $6,025 tax refund ($17,720× 34%)
Zeno’s capital loss carryforward is $9,680 ($27,400 -$17,720).
(The capital loss carry back for preceding 3 pevious year andcarry over 5 succeding year
Carry back of losses will be from 2015-2017
Capital gain $25600
Capital loss $53000
Net capital loss (27400)
| 2016 | 2017 | 2018 | total losses carry back | |
|---|---|---|---|---|
| Net capital gain | 0 | 4120 | 13600 | |
| Carry back capital losses | 4120 | 13600 | 17720 |
a) Computation of Zeno tax refund as 34%
34% tax refund of $ 17,720
= 6024.8
Rouded off = 6025
b)Computation zeno’s capital loss carryforward into 2020.
=(53000 – 25600) – 17720
Capital loss carry forward = 27400 – 17720
= $9,680)
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