Capital losses that exceed capital gains in a given year cannot be deducted by corporations. The only way to apply excess capital losses is to carry them back for three years or forward for five years, and they can only be used against capital gains.

Here's a case study to demonstrate how a C corporation handles capital losses that exceed capital gains.

For the year, imagine a C corporation with the following:

• The value of capital gains is $50,000.
• $80,000 has been lost due to capital losses

The corporation has $30,000 more capital losses than capital gains ($80,000 - $50,000). The $30,000 cannot be utilized to offset other types of income as C Corporations are unable to deduct excess capital losses in the current year. Instead of that, the corporation is able to:

• The $30,000 can be returned to offset capital gains from the previous three years, if applicable.
• The $30,000 will be carried forward to offset capital gains in the next five years.

For example, if the corporation had $20,000 in capital gains two years ago, it could apply $20,000 of the excess loss to that year, leaving $10,000 to carry forward to future years.

Even though the excess losses can't be used immediately, this process ensures that the corporation can still benefit from them.