New York Codes, Rules and Regulations › Title 20 - DEPARTMENT OF TAXATION AND FINANCE › Chapter I - Franchise and Certain Business Taxes › Subchapter A - Business Corporation Franchise Tax › Part 3 - COMPUTATION OF TAX › Subpart 3-7 - CAPITAL LOSSES › Section 3-7.8 - Examples

Current through Register Vol. 46, No. 28, July 10, 2024
The following examples illustrate the application of the
						rules in Subpart 3-7.
Example 1:
Corporation X incorporated and began doing business in
						New York (NY) on January 1, 2022. For tax year 2022, Corporation X has $5,000
						of interest expense directly and indirectly attributable to investment capital.
						Corporation X sustained a $9,000 Federal net capital gain, comprised of a
						$3,000 NY net business capital loss and a $12,000 NY net investment capital
						gain. Corporation X had no other investment income.
The 2022 Federal 1120 contains the following
						information:
Federal taxable income (FTI) before NOLD &
									 special deduction
$150,000
State income taxes deducted
$11,000
2022 FTI income includes the following capital
									 gains (Schedule D):
2022 NY net business capital loss
($3,000)
2022 NY net investment capital gain
$12,000
2022 Federal net capital gain
$9,000
As NY net business capital loss offsets NY net investment
						capital gains, FTI must be increased as follows:
FTI before NOLD & special deduction
$150,000
Increase FTI by the amount of the 2022 NY net
									 business capital loss that offsets NY net investment capital gains
$3,000
FTI adjusted for NY capital loss utilization
									 ("as if federal line 28)
$153,000
Calculation of business income base
FTI adjusted for NY capital loss utilization
									 ("as if federal line 28)
$153,000
Add: State income taxes deducted
$11,000
Entire net income (ENI)
$164,000
Less: Investment income ($12,000 investment
									 capital gain less $5,000 of attributable interest expenses)
$7,000
Business income
$157,000
Corporation X has a NY net business capital loss of
						$3,000 available for carryforward from 2022.
Example 2:
Corporation X incorporated and began doing business in NY
						on January 1, 2011. For tax year 2014, it sustained a $75,000 NY net business
						capital loss. Corporation X has NY business capital gains and losses and uses
						the NY net business capital loss sustained in tax year 2014 as follows:
Tax Year
2011
2012
2013
2014
2015
2016
2017
2018
2019
NY net business capital gains or loss
$3,000
$6,000
$9,000
($75,000)
$12,000
$10,000
$15,000
$13,000
$5,000
NY net business capital loss carryback to
									 2011
($3,000)
<------------
<------------
$3,000
NY net business capital loss carryback to
									 2012
($6,000)
<------------
-$6,000
NY net business capital loss carryback to
									 2013
($9,000)
<------------
$9,000
NY net business capital loss carryforward to
									 2015
$12,000
------------>
($12,000)
NY net business capital loss carryforward to
									 2016
$10,000
------------>
($10,000)
NY net business capital loss carryforward to
									 2017
$15,000
------------>
------------>
($15,000)
NY net business capital loss carryforward to
									 2018
$13,000
------------>
------------>
------------>
($13,000)
NY net business capital loss carryforward to
									 2019
$5,000
------------>
------------>
------------>
------------>
($5,000)
NY net business capital loss
$0
$0
$0
($2,000)
$0
$0
$0
$0
$0
The $2,000 remaining of the NY net business capital loss
						sustained in tax year 2014 is forfeited after tax year 2019 and cannot be
						carried forward to any tax year beginning on or after January 1, 2020 as it
						cannot be carried forward more than five years succeeding the loss year.
Example 3:
For tax year 2014, Corporation X has a $9,000 Federal net
						capital loss available for carryforward. While the $9,000 Federal net capital
						loss is comprised of a $2,000 business capital loss, a $6,000 investment
						capital loss and a $1,000 subsidiary capital loss (not treated as a deduction
						directly attributable to subsidiary capital), the entire loss is treated as a
						NY net business capital loss in tax years beginning on or after January 1,
						2015. The Federal net capital loss is applied as follows in tax year
						2015:
The 2015 Federal 1120 contains the following
						information:
FTI before NOLD & special deduction
$150,000
State income taxes deducted
$15,000
2015 FTI includes the following capital
									 gains/losses (Schedule D):
2015 NY business capital gains
$4,000
2015 NY investment capital gains
$7,000
Less: 2014 NY net business capital loss
									 forward
($9,000)
Total 2015 Federal capital gains after Federal
									 capital loss carryforward
$2,000
Since the FTI computation allows the $7,000 NY investment
						capital gain to be partially offset by the $9,000 carryforward of NY net
						business capital loss, FTI must be re-computed as follows:
2015 FTI before NOLD & special
									 deduction
$150,000
2014 Federal capital loss carried forward to
									 2015
$9,000
2014 NY net business capital loss applied
									 against NY business capital gains
($4,000)
Increase FTI by the amount of the 2014 NY net
									 business capital loss applied against NY investment capital gains
$5,000
FTI adjusted for NY capital loss utilization
									 ("as if" federal line 28)
$155,000
Calculation of business income base
FTI adjusted for NY capital loss utilization
									 ("as if" federal line 28)
$155,000
Add: State income taxes deducted
$15,000
ENI
$170,000
Less: Investment income (investment capital
									 gain after interest attribution)
($7,000)
Business income
$163,000
The 2014 NY net business capital loss carryforward is
						computed as follows:
Total 2014 NY net business capital loss
($9,000)
Less: 2014 NY net business capital loss
									 utilized against business capital gains in 2015
$4,000
Total 2014 NY net business capital loss
									 available for carry forward against business capital gains
($5,000)
Example 4:
Corporation X has NY net business capital gains in tax
						years 2014, 2015, and 2017. In tax year 2016, it sustains a $30,000 NY net
						business capital loss. While NY net business capital losses are generally
						allowed to be carried back three taxable years, such losses cannot be carried
						back to a tax year beginning before January 1, 2015. As a result, the net
						business capital loss cannot be applied against the NY business capital gain
						sustained in tax year 2014. The NY net business capital loss is applied as
						follows:
Tax Year
2014
2015
2016
2017
NY capital loss application
NY business capital gain/loss
$8,000
$10,000
($30,000)
$20,000
NY net business capital loss carryback from
									 2016 to 2015
($10,000)
<-------$10,000
NY net business capital loss carryforward from
									 2016 to 2017
$20,000
------->($20,000)
NY net business capital gain/loss
$8,000
$0
$0
$0
Example 5:
Corporation X sustains an $8,000 NY net investment
						capital loss in tax year 2020. It has no NY investment capital gains in 2017
						through 2019 so the net investment capital loss cannot be carried back. It may
						only be applied against NY investment capital gains as follows:
Tax Year
2020
2021
2022
Business Capital Gain/(Loss)
Investment Capital Gain/(Loss)
Business Capital Gain/(Loss)
Investment Capital Gain/(Loss)
Business Capital Gain/(Loss)
Investment Capital Gain/(Loss)
NY net capital gain/loss
$0
($8,000)
$10,000
$3,000
$9,000
$7,000
NY net investment capital loss carryforward
									 from 2020 to 2021
$3,000
---------------->
($3,000)
NY net investment capital loss carryforward
									 from 2020 to 2022
$5,000
---------------->
---------------->
---------------->
($5,000)
NY net capital gain/loss
$0
$0
$10,000
$9,000
$2,000
Example 6:
For tax year 2020, Corporation X sustained a $10,000
						Federal net capital loss comprised entirely of a $10,000 NY net business
						capital loss. For tax year 2021, Corporation X generated an $11,000 Federal net
						capital gain comprised of a $6,000 NY net business capital gain and a $5,000 NY
						net investment capital gain. For tax year 2022, Corporation X generated a
						$14,000 Federal net capital gain comprised entirely of a $14,000 NY net
						business capital gain. It has no NY business capital gains in tax years before
						2020 so the NY business capital loss cannot be carried back. Therefore, the net
						capital losses are applied against capital gains as follows:
Tax Year
2020
2021
2022
NY Business Capital Gain/(Loss)
NY Investment Capital Gain/(Loss)
NY Business Capital Gain/(Loss)
NY Investment Capital Gain/(Loss)
NY Business Capital Gain/(Loss)
NY Investment Capital Gain/(Loss)
NY net capital gain/loss
($10,000)
$0
$6,000
$5,000
$14,000
$0
NY net business capital loss carryforward from
									 2020 to 2021
$6,000
----------------->
($6,000)
NY net business capital loss carryforward from
									 2020 to 2022
$4,000
----------------->
----------------->
----------------->
($4,000)
NY net capital gain/loss
$0
$0
$0
$5,000
$10,000
$0
Example 7:
In tax year 2019, Corporation A used a $2,000 Federal net
						capital loss. Such capital loss is classified as a NY net investment capital
						loss and offsets NY business capital gains. As a result, FTI reported on the
						original tax year 2019 return must be increased by the amount of the NY net
						investment capital loss as follows:
The 2019 original Federal 1120 contains the following
						information:
FTI before NOLD & special deduction
$175,000
State income taxes deducted
$7,000
2019 FTI income includes the following capital
									 gains (Schedule D):
2019 NY business capital gains
$6,000
2019 NY investment capital loss
($2,000)
2019 Federal net capital gain
$4,000
Recomputation of FTI without NY net business capital gain
						offset by NY net investment capital loss on original 2019 return
FTI before NOLD & special deduction
$175,000
Increase FTI by the amount of the 2019 NY
									 investment capital loss that offset NY business capital gain
$2,000
FTI adjusted for NY capital loss utilization
									 ("as if" federal line 28)
$177,000
For tax year 2022, Corporation A sustained a Federal net
						capital loss of $8,000 comprised of a $3,000 NY net business capital loss and a
						$5,000 NY net investment capital loss. Corporation A carries the Federal net
						capital loss back to the 2019 tax year and computes its 2019 FTI on the amended
						2019 return as follows:
The 2019 amended Federal 1120 contains the following
						information:
FTI before NOLD & special deduction
$171,000
State income taxes deducted
$7,000
Amended 2019 FTI income includes the following
									 capital gains (Schedule D):
2019 NY business capital gains
$6,000
2019 NY investment capital loss
($2,000)
2022 NY total capital loss carryback
($4,000)
2019 Federal net capital gain
$0
For NY purposes, the tax year 2019 NY net investment
						capital loss cannot offset the tax year 2019 NY business capital gain (as
						adjusted on the original tax year 2019 return). Additionally, Corporation A may
						only carry back the tax year 2022 NY net business capital loss of $3,000 to tax
						year 2019 as it has no NY investment capital gains in tax year 2019. Therefore,
						FTI must be re-computed on the amended tax year 2019 return as follows:
Recomputation of FTI without regard to federal
									 application of capital losses
FTI before NOLD & special deduction
$171,000
Add: 2022 Federal capital loss carryback
									 applied against capital gains on 2019 federal return
$4,000
Add: 2019 NY investment capital loss
$2,000
Subtract: 2022 NY net business capital loss
									 carryback
($3,000)
FTI adjusted for NY capital loss utilization
									 ("as if" federal line 28)
$174,000
The re-computed FTI must be used in the computation of
						tax year 2019 business income as follows:
Calculation of business income base
FTI adjusted for NY capital loss utilization
									 ("as if" federal line 28)
$174,000
Add: State income taxes deducted
$7,000
ENI
$181,000
Less: Investment income
$0
Business income
$181,000
Corporation A does not have NY net capital gains in tax
						years 2020 or 2021 to apply against NY capital losses. As a result, at the end
						of tax year 2022, it has no NY net business capital loss carryforward and a
						$7,000 NY net investment capital loss carryforward as follows:
Calculation of balance of NY net capital loss
									 at the end of 2022
Total NY net capital gains/losses
NY net business capital gains/losses
NY net investment capital gains/losses
Net capital loss sustained in 2022
($8,000)
($3,000)
($5,000)
Add: 2019 NY net investment capital loss
($2,000)
($2,000)
Less: 2022 NY net business capital loss carried
									 back to 2019
$3,000
$3,000
Less: 2022 capital loss utilized against
									 capital gains classified as business income in 2019
$0
Balance of NY net capital loss at the end of
									 2022
($7,000)
$0
($7,000)
Example 8:
Corporation X was incorporated and began doing business
						in NY on January 1, 2019. In calendar year 2019, it sustained a $35,500 Federal
						net capital loss comprised of a $24,500 NY net business capital loss and an
						$11,000 NY net investment capital loss. These NY net capital losses cannot be
						carried back as the corporation did not file NY State corporation tax returns
						prior to tax year 2019. Corporation X has NY filing years in 2019, 2020, and
						2022. Calendar year 2021 is a NY non-filing year. As a result, the 2019 NY net
						capital loss cannot be used in tax year 2021 but this year counts toward the
						five-year carryforward period. Such NY net capital losses are used as
						follows:
NYS Capital Loss Application
									 Schedule
2019
2020
2021
2022
NY Business Capital Gain/(Loss)
NY Investment Capital Gain/(Loss)
NY Business
Capital Gain/(Loss)
NY Investment Capital Gain/(Loss)
Federal Capital Gain/Loss
NY Business Capital Gain/(Loss)
NY Investment Capital Gain/(Loss)
Capital Gains/Losses
($24,500)
($11,000)
$12,500
$0
$15,000
$1,000
$3,000
NY net business capital loss carryforward to
									 2020
$12,500
---------------->
($12,500)
NY net business capital loss carryforward to
									 2022
$1,000
----------------->
----------------->
----------------->
---------------->
($1,000)
NY net investment capital loss carryforward to
									 2022
$3,000
----------------->
----------------->
---------------->
---------------->
($3,000)
Capital gain
$0
$0
$0
$0
$15,000
$0
$0
Net capital loss available after 2022
($11,000)
($8,000)
$0
$0
$0
$0
$0
Example 9:
Taxpayer A properly filed a combined report with members
						B, C and D in tax years 2020, 2021 and 2022. It has no NY net business or
						investment capital gains in years prior to 2020 so the NY net business capital
						losses and NY net investment capital losses cannot be carried back. The group
						applies its NY net capital losses as follows:
Combined NYS Capital Loss
									 Application Schedule
2020
2021
2022
Combined Group: A, B, C & D
NY Business Capital Gain/(Loss)
NY Investment Capital Gain/(Loss)
NY Business Capital Gain/(Loss)
NY Investment Capital Gain/(Loss)
NY Business Capital Gain/(Loss)
NY Investment Capital Gain/(Loss)
A
($12,500)
($1,250)
$2,500
$250
$50,000
$7,250
B
$950
$95
($1,000)
($100)
($250)
$150
C
($11,250)
($1,125)
($1,500)
($150)
$6,000
($1,250)
D
($5,575)
$580
($2,500)
($250)
($3,500)
($1,100)
Total
($28,375)
($1,700)
($2,500)
($250)
$52,250
$5,050
NY net business capital loss carryforward from
									 2020 to 2022
$28,375
----------------->
----------------->
----------------->
($28,375)
NY net investment capital loss carryforward
									 from 2020 to 2022
$1,700
----------------->
----------------->
----------------->
($1,700)
NY net business capital loss carryforward from
									 2021 to 2022
$2,500
----------------->
($2,500)
NY net investment capital loss carryforward
									 from 2021 to 2022
$250
----------------->
($250)
Capital gain/loss
$0
$0
$0
$0
$21,375
$3,100
Example 10:
Corporations A, B, C and D, are calendar-year taxpayers
						that began doing business in tax year 2022 and properly filed as members of a
						combined group in tax year 2022. Corporation D leaves the ABCD combined group
						at the end of tax year 2022. The combined group ABCD sustained a NY net
						business capital loss and a NY net investment capital loss for tax year 2022.
						Each member of the group must compute its individual NY net capital loss
						carryforward separately for each type of capital loss by multiplying the total
						NY net capital loss carryforward by a percentage that is the individual
						member's contribution to that type of capital loss divided by the total capital
						loss for that type of capital. The individual members of the combined group
						compute their individual NY net business capital loss carryforward and NY net
						investment capital loss carryforward as follows:
Combined NYS Capital Loss
									 Application Schedule
2022
Member's losses as a % of total losses of all
									 members with losses
Member's Loss Carryforward
Combined Group Members
Business Capital Gains/(Losses)
Investment Capital Gains/(Losses)
Business Capital Gains/(Losses)
Investment Capital Gains/(Losses)
Business Capital Gains/(Losses)
Investment Capital Gains/(Losses)
A
$25,000
$750
0%
0%
$0
$0
B
($25,000)
($200)
50%
20%
($12,500)
($50)
C
($15,000)
($500)
30%
50%
($7,500)
($125)
D
($10,000)
($300)
20%
30%
($5,000)
($75)
Combined Group ABCD
($25,000)
($250)
100%
100%
($25,000)
($250)
Capital Loss Available
($25,000)
($250)
($25,000)
($250)
Total contribution of losses
($50,000)
($1,000)
Leaving member D takes its NY net business capital loss
						carryforward of $5,000 ($25,000 multiplied by 20%) and its NY net investment
						capital loss carryforward of $75 ($250 multiplied by 30%).
Example 11:
Corporation D, a calendar-year taxpayer, began doing
						business in NY in tax year 2015 and files on a standalone basis in tax years
						2015 and 2016. Corporations A, B and C have NY non-filing years in 2015 and
						2016 but in tax year 2017 file a combined report with Corporation D. Combined
						group ABCD sustains a NY net business capital loss in tax year 2017. The group
						applies its 2017 net capital loss as follows:
Combined NYS Capital Loss Application
									 Schedule
2015
2016
2017
2018
2019
2020
2021
Combined Group Members
NY Business Capital Gains/ (Losses)
NY Business Capital Gains/ (Losses)
NY Business Capital Gains/ (Losses)
NY Business Capital Gains/ (Losses)
NY Business Capital Gains/ (Losses)
NY Business Capital Gains/ (Losses)
NY Business Capital Gains/ (Losses)
A
$0
$0
($4,500)
$0
$0
$0
$1,250
B
$0
$0
($250)
$0
$0
$0
$2,250
C
$0
$0
($5,500)
$0
$0
$0
$5,000
D
($12,500)
$0
$0
$0
$0
$2,500
Total
($12,500)
($10,250)
$0
$0
$0
$11,000
NY net business capital loss carryforward from
									 2017 to 2020
$10,250
----------------->
----------------->
----------------->
$10,250
NY capital gain/loss
($12,500)
$0
$0
$0
$0
$0
$750
Corporation D's NY net business capital loss sustained in
						tax year 2015 is forfeited at the end of tax year 2020, five years after the
						loss year, even though there were no NY business capital gains to apply it
						against in tax years 2016 through 2020. Combined group ABCD's NY net business
						capital loss sustained in tax year 2017 is carried forward to 2021 and offsets
						the NY business capital gains of the combined group.