Question

Forum question:

1. When do recognition and realization coincide for tax losses?

2. Why is it desirable to recognize the benefit of a tax loss carryforward in the period of the accounting loss? Under what circumstances will such a benefit be realized?

Answer 1

Capital Loss

A capital loss occurs when you sell a capital asset for less than its basis. The basis of an asset is its purchase price plus the cost of any improvements or additions. Capital losses can be used to reduce the tax on gains from other asset sales. If your losses exceed your gains for the year, you can reduce your income from capital losses. Any unused losses can be carried forward to be used toward future tax returns.

Why is it desirable to recognize the benefit of a tax loss carryforward in the period of the accounting loss

A tax loss carryforward is a provision that allows a taxpayer to carry over a tax loss to future years to offset a profit. The tax loss carryforward can be claimed by an individual or a business in order to reduce any future tax payments.

Under what circumstances will such a benefit be realized

Such benefit will be realised in case of future profits/tax payments

Note-

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