The treatment of capital gains and losses for corporations is different
from the treatment of such items for individual taxpayers in several
important ways. In particular, as discussed more fully below, there is no
favorable treatment for corporate long-term capital gains. Also, there is
no deduction (not even up to $3,000) for capital losses that exceed capital
gains. Be sure to consider the tax rules described below when planning your
corporation's capital gain and loss transactions.
Capital losses. Just as with individuals, a
corporation's capital losses are first “netted” or offset against the
company's capital gains. However, if an individual has losses in
excess of gains, he can deduct up to $3,000 of the excess losses against
other income. A corporation, on the other hand, cannot deduct any
capital losses in excess of capital gains. That is, the $3,000 loss
allowance is not available for corporations.
The “carryover” rules are different and more limited for corporations as
well. An individual carries excess capital losses forward only, but
indefinitely. A corporation carries its excess capital losses backward or
forward, but for limited time periods: backward only up to three years, and
forward only up to five years. Any capital loss not used within the three
or five year period is forfeited. Be careful, therefore, not to let capital
losses expire: cash-in any capital gains you can in the last year to take
advantage of the losses.
The corporation cannot pick and choose the year to which to carry the
losses. The losses must be used in the earliest year they can be used,
i.e., in the earliest year in which there are net capital gains against
which the losses can be offset. (Note, however, that a corporation's
capital losses cannot be carried back to a year in which they would increase
or produce a net operating loss). If capital losses from more than one year
are being carried to other years, the earlier year losses are used first.