Example:
1952 | 1953 | 1954 | 1955 | 1956 | |
Carryover from prior years: | |||||
From 1952 | ($50,000) | ($29,500) | ($29,500) | ||
From 1954 | (19,500) | ($13,000) | |||
Net short-term loss (computed without regard to the carryovers) | ($30,000) | (5,000) | (10,000) | ||
Net short-term gain (computed without regard to the carryovers) | 40,000 | ||||
Net long-term loss | (20,500) | (10,000) | (5,000) | ||
Net long-term gain | 25,000 | 15,000 | |||
Net income or taxable income, computed without regard to capital gains and losses, and, after 1953, without regard to the deduction provided by section 151 | 500 | 500 | 500 | 1,000 | 500 |
Net capital gain (capital gain net income for taxable years beginning after December 31, 1976) (computed without regard to the carryovers) | 20,500 | 36,000 | |||
Net capital loss | (50,000) | (19,500) | |||
Deduction allowable under section 1202 | 1,000 | ||||
Taxable income (after deductions allowable under sections 151 and 1202) | 900 |
and, subject to subdivision (ii) of this subparagraph, treat such net capital loss in each of such 3 preceding and 5 succeeding taxable years as a short-term capital loss.
1967 | 1968 | 1969 | 1970 | 1971 | 1972 | 1973 | 1974 | 1975 | |
Taxable income (computed without regard to capital gains or losses) | $25,000 | $25,000 | $25,000 | $25,000 | $25,000 | $25,000 | $25,000 | $25,000 | $25,000 |
Net capital loss | (1,000) | (29,500) | (16,000) | (500) | |||||
Net capital gain (capital gain net income for taxable years beginning after December 31, 1976) (computed without regard to carrybacks or carryovers) | 14,000 | 16,000 | 8,000 | 7,500 | 6,500 | ||||
Carryback or carryover: | |||||||||
From 1969 | (1,000) | ||||||||
From 1970 | (14,000) | (15,500) | |||||||
From 1971 | (500) | (7,000) | (7,500) | (1,000) | |||||
From 1972 | (500) |
The net capital loss of 1969, under the rules of subparagraph (1) of this paragraph, may not be carried back. Thus, the net capital loss for 1970 is carried back and partially absorbed by the net capital gain (capital gain net income for taxable years beginning after December 31, 1976) for 1967, and a portion of the net capital losses of both 1970 and 1971 are carried back to 1968. The net capital loss for 1969 is the oldest that may be carried to 1973, and thus, it is the first carried over and absorbed by the net capital gain for 1973. The net capital loss for 1972 (which is not carried back because of the net capital losses in the 3 years preceding 1972) may be carried over to 1973.
Operating income or loss (exclusive of capital gain or loss) | Capital gain or loss | |
1967 | $20,000 | $24,000 |
1968 | 20,000 | 0 |
1969 | 20,000 | 0 |
1970 | (25,000) | (20,000) |
The net capital loss of $20,000 for 1970 is carried back to 1967 and applied against the $24,000 net capital gain (capital gain net income for taxable years beginning after December 31, 1976) realized in that year, reducing such net capital gain (capital gain net income for taxable years beginning after December 31, 1976) to $4,000. The net operating loss of $25,000 for 1970 is then carried back to 1967 and applied first to eliminate the $20,000 of operating income for that year and then to eliminate the net capital gain (capital gain net income for taxable years beginning after December 31, 1976) for that year of $4,000 (as reduced by the 1970 capital loss carryback).
Operating income or loss (exclusive of capital gain or loss) | Capital gain or loss | |
1967 | ($20,000) | $24,000 |
1968 | 20,000 | 0 |
1969 | 20,000 | 0 |
1970 | (25,000) | (20,000) |
The net capital loss of $20,000 for 1970 is carried back to 1967 and applied against the $24,000 net capital gain (capital gain net income for taxable years beginning after December 31, 1976) realized in that year only to the extent of $4,000, the maximum amount to which the 1970 capital loss carryback can be applied without producing a net operating loss for 1967. The unused $16,000 balance of the 1970 net long-term capital loss can be carried forward to 1971 and subsequent taxable years to the extent provided in subdivision (i)(b) of this subparagraph.
Operating income or loss (exclusive of capital gain or loss) | Capital gain or loss | |
1967 | 0 | 0 |
1968 | ($20,000) | 0 |
1969 | 0 | $24,000 |
1970 | 20,000 | (24,000) |
The net capital loss of $24,000 for 1970 is carried back to 1969 and applied against the $24,000 net capital gain (capital gain net income for taxable years beginning after December 31, 1976) realized in that year to the extent of $24,000. The application of the capital loss carryback is not limited as it was in Example 4 because such carryback neither increases nor produces a net operating loss, as such, for 1969. The $20,000 net operating loss for 1968 is then carried forward to 1970 to eliminate the $20,000 of operating income for that year.
Operating income or loss (exclusive of capital gain or loss) | Capital gain or loss | |
1967 | 0 | 0 |
1968 | 0 | 0 |
1969 | ($20,000) | ($24,000) |
1970 | 20,000 | 20,000 |
The net capital loss of $24,000 for 1969 is carried forward to 1970 and applied against the $20,000 net capital gain (capital gain net income for taxable years beginning after December 31, 1976) realized in that year. The unused $4,000 balance of the 1969 net capital loss can be carried forward to 1971 and subsequent taxable years to the extent provided in subdivision (i)(b) of this subparagraph.
The rules provided in this subdivision are for the purpose of taking into account the additional allowance deductible for the current taxable year under section 1211(b) and § 1.1211-1(b)(2) in determining the amount and character of capital loss carryovers from the current taxable year to the succeeding taxable year. Their practical application to a determination of the amount and character of capital loss carryovers from the current taxable year to the succeeding taxable year involves identification of the net long-term and net short-term capital loss components of the additional allowance deductible in the current taxable year as provided by § 1.1211-1(b)(2)(iii) . To the extent that the additional allowance is composed of net short-term capital losses, such losses are treated as a short-term capital gain in the current taxable year in determining the capital loss carryovers to the succeeding year. To the extent that the additional allowance is composed of net long-term capital losses applied pursuant to the provisions of § 1.1211-1(b)(2)(iii) , an amount equal to twice the amount of such component of the additional allowance is treated as a short-term capital gain in the current taxable year. See paragraph (4) of this section for transitional rules if any part of the additional allowance is composed of net long-term capital losses carried to the current taxable year from a taxable year beginning before January 1, 1970.
Net long-term capital loss | ($3,000) | |
Additional allowance deductible under section 1211(b) | $1,000 | |
Excess of additional allowance over net short-term capital loss (determined without regard to section 1212(b)(2)(B)(i)) | 1,000 | |
Total amount treated as short-term capital gain under 1212(b)(2)(B) for purposes of determining carryover | 2,000 | |
Long-term capital loss carryover to 1973 | (1,000) |
If, in 1973, he had taxable income for purposes of section 1211(b) of $8,000, but no capital gains or losses, $500 (one-half) of the net long-term capital loss carryover from 1972 would be deductible in 1973 as the additional allowance deductible under section 1211(b). No amount of capital loss would be carried over to 1974.
Losses allowed to the extent of gains | ($1,500) | |
Amount allowed under section 1211(b)(1)(C): | ||
(i) Excess of net short-term capital loss over net long-term capital gain | (200) | |
(ii) One-half of the excess of net long-term capital loss over net short-term capital gain | (350) | |
Additional allowance deductible under section 1211(b) | 550 |
The total amount treated as short-term capital gain under section 1212(b)(2)(B) for purposes of determining any carryover to the succeeding taxable year exceeds $900. No amount of net capital loss remains to be carried over to the succeeding taxable year.
Losses allowed to extent of gains | ($1,500) | |
Amount allowed under section 1211(b)(1) (B) and (C): | ||
(i) Excess of net short-term capital loss over net long-term capital gain | (200) | |
(ii) One-half the excess of net long-term capital loss over net short-term capital gain | (900) |
as limited by 1211(b)(1)(B) to an additional allowance of $1,000.
Carryover under section 1212(b)(1): | ||
Net long-term capital loss for 1971 | ($1,800) | |
Additional allowance under section 1211(b)(1)(B) | 1,000 | |
Excess of additional allowance deductible under section 1211(b) over net short-term capital loss determined without regard to section 1212(b)(2)(B)(i) ($1,000 less $200) | 800 | |
Total amount treated as short-term capital gain under section 1212(b)(2)(B) for purposes of determining carryover | 1,800 | |
Short-term capital gain for 1971 | 500 | |
Total short-term capital gain | 2,300 | |
Short-term capital loss for 1971 | (700) | |
Net short-term capital gain | 1,600 | |
Long-term capital loss carryover ($1,800 less $1,600) | 200 |
For 1969, an unmarried individual has taxable income for purposes of section 1211(b) of $8,000, a long-term capital loss of $3,000, and no other capital gains or losses. He is allowed to deduct in 1969 $1,000 as the additional allowance deductible under section 1211(b) (as in effect for pre-1970 taxable years) and to carry over to 1970, a long-term capital loss of $2,000 under section 1212(b) (as in effect for pre-1970 taxable years).
If, in 1970, the same unmarried individual with taxable income for purposes of section 1211(b) of $8,000, has no capital gains or losses, he would deduct $1,000 of his pre- 1970 capital loss carryover as the transitional additional allowance deductible under section 1211(b) (as in effect for pre-1970 years) and carry over under section 1212(b)(1) (as in effect for pre-1970 taxable years) to 1971 the remaining $1,000 as a pre-1970 long-term capital loss.
If, in 1970, the same individual instead has a long-term capital gain of $2,500, and a long-term capital loss of $1,500, he would net these two items with the $2,000 carried to 1970 as a long-term capital loss. Thus, he would have a net long-term capital loss for 1970 of $1,000 which is deductible in 1970 as the transitional additional allowance deductible under section 1211(b). He would have no amount to carry over under section 1212(b)(1) to 1971.
If, in 1970, the same individual instead has a long-term capital loss of $1,200, and a long-term capital gain of $200, resulting in a net long-term capital loss of $3,000 when netted with the $2,000 carried to 1970 as a long-term capital loss, he would deduct $1,000 in respect of his pre-1970 long-term capital loss carryover as the transitional additional allowance deductible under section 1211(b) (as in effect for pre-1970 taxable years) and carry over under section 1212(b)(1) (as in effect for pre-1970 taxable years) to 1971 the remaining $1,000 of the pre-1970 component of his long-term capital loss carryover, and the $1,000 net long-term capital loss actually sustained in 1970 as the second component of his long-term capital loss carryover.
For 1971, the same taxpayer filing a separate return with taxable income for purposes of section 1211(b) of $8,000, has a $3,600 long-term capital gain and a $2,200 long-term capital loss. When these gains and losses are combined with the long-term capital loss carryover from 1970 of $3,500, a net long-term capital loss of $2,100 results. He would deduct $1,000 as the transitional additional allowance deductible under section 1211(b). The $1,000 additional allowance would absorb $100 of the unused pre-1970 long-term capital loss carryover of $1,500 plus $1,800 of the unused post-1969 long-term capital loss carryover of $2,100 (the amount of the 1971 net long-term capital loss necessary to make up the remaining $900 balance of the additional allowance). Although a component of the 1971 net long-term capital loss is the unused pre-1970 long-term capital loss carryover of $1,500, only $100 of this carryover is available for use in full on a dollar-for-dollar basis in computing the transitional additional allowance for 1971 since it only exceeds by that amount the $1,400 net capital gain (capital gain net income for taxable years beginning after December 31, 1976) actually realized in 1971 all of which is net long-term capital gain (long-term capital gain of $3,600 reduced by long-term capital loss of $2,200). See § 1.1221-1(b)(3)(ii) . The taxpayer would carry over to 1972 as a long-term capital loss the remaining $200 of the 1971 long-term capital loss.
H | W | |
Long-term capital gains | $8,000 | $9,000 |
Long-term capital losses | (15,000) | (6,000) |
Short-term capital gains | 10,000 | 4,000 |
Short-term capital losses | (19,000) | (5,000) |
Thus, in 1965 H and W had a net capital loss of $14,000 on their joint return. Of this amount, $4,000 was a long-term capital loss carryover, and $10,000 was a short-term capital loss carryover, determined in accordance paragraph (b) of this section. H's net long-term capital loss was $7,000 for 1965. This amount was offset on the joint return by W's net long-term capital gain of $3,000. Thus, H may carry over to his separate return for 1966, a long-term capital loss carryover of $4,000. H and W may carry over to their separate returns for 1966, as short-term capital loss carryovers, the amounts of their respective net short-term losses from 1965, $9,000 and $1,000.
26 C.F.R. §1.1212-1