N.Y. Comp. Codes R. & Regs. Tit. 20 §§ 3-7.8
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.
N.Y. Comp. Codes R. & Regs. Tit. 20 §§ 3-7.8