Or. Admin. R. 150-317-0060

Current through Register Vol. 63, No. 6, June 1, 2024

Section 150-317-0060 - Capital Losses - Carrybacks and Carry-overs

(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) 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.

Example 1: In tax year 2019, Corporation XYZ had an Oregon apportionment percentage of 25 percent. In the same tax year, Corporation XYZ realized an apportionable capital loss of $2,000. Consequently, $500 ($2,000 x 25 percent) of the capital loss is apportioned to Oregon. Corporation XYZ had no capital gain income in the past three tax years. The result is that Corporation XYZ can carry forward its $500 capital loss five tax years for Oregon tax purposes.

In tax year 2020, Corporation XYZ had an Oregon apportionment percentage of 10 percent. Corporation XYZ claimed a federal capital loss deduction of $2,000 and federal capital gains of $4,000 on its federal tax return based on its tax year 2019 capital loss. Corporation XYZ computes its Oregon capital loss deduction by first adding $2,000 to its federal taxable income on its Oregon tax return. Corporation XYZ is then allowed to subtract $400 ($4,000 x 10 percent) of the 2019 capital loss on its Oregon tax return because $400 of the tax year 2020 capital gain was apportioned to Oregon. Corporation XYZ now has $100 of capital losses to carry forward to the remaining allowable future tax years for Oregon purposes.

Example 2: Corporation EDF is commercially domiciled in California. In tax year 2019, Corporation EDF had an Oregon apportionment percentage of 25 percent. In the same tax year, Corporation EDF realized a non-apportionable capital loss of $2,000 from the sale of a collectible sled. None of the capital loss is apportioned to Oregon. For federal tax purposes, Corporation EDF properly carries forward the entire capital loss to tax year 2020. Corporation EDF adds $2,000 to its federal taxable income on its Oregon tax return. Corporation EDF subtracts none of the capital loss on its Oregon tax return because none of the capital loss is allocated or apportioned to Oregon and so Corporation EDF has zero carryforward.

(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.

Example 3: Corporation X has a federal net capital loss of $3,000 for2023. X's apportionment factor for 2023 is 40 percent. All of Corporation X's capital gains and losses are apportionable under ORS 314.610(1). In 2020, X had a federal net capital gain of $1,000 and its Oregon apportionment factor was 50 percent. X has a $1,200 ($3000 x 40 percent) Oregon net capital loss available for carryback to 2020. X will deduct $500 ($1000 x 50 percent) on the 2020 return and must carry the remaining $700 forward to other tax years.

(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.

Example 4: Corporations X and Y filed a consolidated Oregon return in 2023 reporting a net capital loss of $5,000 that is attributable to Y. The consolidated apportionment factor for 2023 is 40 percent. In 2020, X and Y filed a consolidated Oregon return reporting a net capital gain of $10,000 attributable to X. The consolidated Oregon apportionment factor in 2020 was 25 percent. All of Corporations X and Y's gains and losses were apportionable and not allocated. The Oregon capital loss carryback of $2,000 ($5,000 x 40 percent) from 2023 is fully deductible in 2020 because it does not exceed the Oregon consolidated net capital gain of $2,500 ($10,000 x 25 percent).

(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).

Example 5: Corporation R filed a separate Oregon return for 2022 reflecting an Oregon net capital loss of $3,000. Corporation R did not have net capital gains in any of the prior three years. For 2023, Corporation R was included in a consolidated Oregon return with Corporations S and T. The consolidated group was not subject to the apportionment provisions. See ED NOTE for example table.

(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.

Example 6: X Corporation and unitary subsidiaries Y and Z filed a consolidated Oregon return for 2022, their first year in business. X had a $3,000 capital loss, Y had a $2,000 capital gain, and Z had a $1,000 capital loss (consolidated net capital loss of $2,000). The 2022 Oregon apportionment factor for the consolidated group is 60 percent. On December 31, 2022, X Corporation sold 100 percent of Z's stock to an outside investor. The capital loss that can be carried forward to the 2023 consolidated return of X and Y is computed in the table as follows: See ED NOTE for example table.

(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.

Example 7: Assume the same facts as in Example 6. The 2023 separate Oregon return of Z shows a net capital gain of $200 with an Oregon apportionment factor of 50 percent. The net capital loss deduction allowed is $100 ($200 x 50 percent). Z has a net capital loss carryover to 2024 of $200.

(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) 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.

Example 8: In its first tax year 2022, B Corporation had a net capital loss of $6,000. Because of its 50 percent Oregon apportionment factor, $3,000 ($6,000 x 50 percent) of the loss is apportioned to Oregon. On January 1, 2023, 100 percent of B's stock was purchased by P Corporation. Because they were unitary, P and B file a 2023 consolidated Oregon return that includes B's net capital gain of $1,000 and P's net capital gain of $3,000. The consolidated return apportionment factor is 35 percent. On the 2023 consolidated return, only $350 of B's $3,000 net capital loss carryover can be deducted (the lesser of $1,000 x .35 or $4,000 x .35).

Or. Admin. R. 150-317-0060

RD 10-1986, f. & cert. ef. 12-31-86; RD 15-1987, f. 12-10-87, cert. ef. 12-31-87; RD 11-1988, f. 12-19-88, cert. ef. 12-31-88; RD 12-1990, f. 12-20-90, cert. ef. 12-31-90; RD 9-1992, f. 12-29-92, cert. ef. 12-31-92; REV 6-2004, f. 7-30-04, cert. ef. 7-31-04; REV 8-2010, f. 7-23-10, cert. ef. 7-31-10; Renumbered from 150-317.013, REV 67-2016, f. 8-15-16, cert. ef. 9/1/2016; REV 29-2022, amend filed 12/20/2022, effective 1/1/2023

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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).

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Statutory/Other Authority: ORS 305.100

Statutes/Other Implemented: ORS 317.010 & 317.476