5. Kathy owns all the stock in Eagle Corporation. Eagle Corporation reports on a calendar year basis. During the 2006, Kathy incurs a $ 25,000 long term capital loss, and Eagle Corporation incurs a $ 25,000 long term capital loss. Compare the treatment of these transactions on the tax returns of Kathy and Eagle.
Net Long-Term Capital Loss (LTCL) can be adjusted with the Net Long-Term Capital Gains (LTCG) for both Kathy and Eagle Corp.
For Kathy: If LTCL is more than LTCG for Kathy then she can carry forward the amount and can deduct $3k every year (upto 5 years).
For Eagle Corp. - It can carry forward (for 5 years) the LTCL and adjust in future years with LTCG, but the ...
The solution determines how Kathy should report a capital loss on her tax return.