Capital Losses — Carrybacks and Carry-overs

# (1)

(1) Federal law applies to capital losses.

(a) Capital losses are deducted to the extent of capital gains in the same tax year.

(b) Capital losses in excess of capital gains must be carried back three tax years. Capital losses that do not fully offset capital gains for a year to which the losses are carried back may be carried forward for up to five tax years after the tax year in which the capital losses were incurred.

(c) Capital loss carrybacks and carryovers can only be used to reduce capital gains in the tax years to which they are carried.

(d) A capital loss carryback cannot be used to create or increase a net loss in the tax year to which it is carried.

(e) If a capital loss is not carried to tax years in the order provided in subsections (1)(b) through (1)(d), the amount of net capital loss that should have been utilized to decrease capital gain net income cannot be used to offset capital gains in other taxable years.

# (2)

(2) Oregon provisions, such as the requirement that corporations be unitary to be included in the consolidated Oregon return and the apportionment and allocation provisions, may result in differences between the Oregon and federal capital loss deductions and carryovers.

(a) A federal capital loss deduction used to determine a taxpayer's federal taxable income or loss must be added to the taxpayer's taxable income or loss determined pursuant to ORS 317.010(10) before calculating the Oregon capital loss deduction using the provisions of this rule.

(b) When a corporation or consolidated group of corporations is taxable within and without this state, its Oregon net capital loss carryback and carryover must be computed using the allocation or apportionment provisions. The Oregon capital loss is computed using the apportionment factor for the tax year of the loss if the loss is apportionable and not allocated. The capital loss is applied to the Oregon capital gains for the year of carryback or carryover. Oregon capital gains are computed using the apportionment factor for the tax year of the gain if the gain is apportionable.

(c) Oregon net capital losses that are attributed to corporations that continue to be included in the same consolidated Oregon return may be deducted fully against the Oregon consolidated net capital gain of the tax years to which such losses are carried.

# (3)

(3) If a corporation is included in a combined return, separate return or in a different consolidated return in the year of the capital loss and the capital loss is carried into a year when a consolidated Oregon return is filed, the Oregon capital loss carryover may be subject to the federal separate return limitation year (SRLY) limitations in Treas. Reg. Sec. 1.1502-22.

(a) If a net capital loss is reported on a separate Oregon return by a corporation doing business only in Oregon, the SRLY limitation applies if the loss is carried to a tax year in which a consolidated return is filed, apportionment is not required, and the corporation with the loss (the limited member) is not the parent corporation. To compute the Oregon SRLY limitation, first recompute the consolidated net capital gain by excluding the capital gains and losses and the IRC Sec. 1231 gains and losses of the limited member. Then subtract the recomputed consolidated net capital gain from the total consolidated net capital gain (computed without regard to any net capital loss carryover or carrybacks).

(b) If a corporation is included in a consolidated Oregon return in the year of the consolidated net capital loss and files a separate Oregon return or is included in a different consolidated Oregon return in the year to which the net capital loss is carried, the Oregon consolidated net capital loss is attributed to the corporations with net capital losses for purposes of determining the allowable net capital loss carryover. The portion of an Oregon consolidated net capital loss attributable to a member of a consolidated group is an amount equal to such Oregon consolidated net capital loss multiplied by a fraction, the numerator of which is the net capital loss of such member and the denominator of which is the sum of the net capital losses of those members of the consolidated group having net capital losses.

(c) If corporations carry their net capital losses to a tax year in which separate tax returns are filed, the net capital losses can be deducted by each corporation only if a net capital gain is shown on the separate tax return. The net capital loss deduction is further limited by the amount of the net capital gain attributable to Oregon based on the Oregon apportionment factor.

(d) If a group of unitary corporations, taxable within and without this state, filed a consolidated return for the year of the net capital loss and carries the net capital loss after apportionment back to a year in which a combined return is filed, the net capital loss must be allocated among the corporations as provided under the SRLY limitations in Treas. Reg. Sec. 1.1502-22. The net capital gain of the unitary group in the combined year must be apportioned among the corporations based on each corporation's Oregon apportionment percentage.

# (4)

(4) If a corporation, taxable within and without this state, filed a separate return or was included in a different consolidated return for the year of the net capital loss and carries the net capital loss after apportionment to a year in which a consolidated return is filed, the net capital loss can be deducted only to the extent that the same corporation has a net capital gain which is attributed to Oregon. If the consolidated group in the carryover year is subject to the apportionment provisions, the net capital gain of the member must be attributed to Oregon based on the consolidated Oregon apportionment factor.

[ED. NOTE: To view attachments referenced in rule text, click here for PDF copy.]

[Publications: Contact the Oregon Department of Revenue for information about how to obtain a copy of the publication referred to or incorporated by reference in this rule pursuant to ORS 183.360(2) and ORS 183.355(2)(b).]

[ED. NOTE: To view attachments referenced in rule text, click here for PDF copy.]