Tax Treatment of Capital Gains and Losses for C Corporations

C corporations must follow the rules discussed throughout this chapter on reporting capital gains and losses separately from their other income. These gains and losses are detailed on the corporation’s Schedule D. However, C corporations at present realize no benefit from capital gains. Net gains, capital gains in excess of capital losses, are simply added to other business income. In effect, capital gains are taxed at the same rate of the corporation’s other income. In the past, C corporations enjoyed a favorable tax rate on their capital gains and it may be possible that this treatment will be restored in the future.

While there are no benefits from capital gains, capital losses of C corporations are subject to special limitations discussed later in this chapter.

Loss Limitations

In some cases, even if you sell or exchange property at a loss, you may not be permitted to deduct your loss. If you sell, exchange, or even abandon a Section 197 intangible (see Chapter 14 for a complete discussion of the amortization of Section 197 intangibles), you cannot deduct your loss if you still hold other Section 197 intangibles that you acquired in the same transaction. Instead, you increase the basis of the Section 197 intangibles that you still own. This means that instead of deducting your loss in the year you dispose of 1 Section 197 intangible, you will deduct a portion of the loss over the remaining recovery period for the ...

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