799 / How is a corporation taxed on capital gains?

Capital gains and losses are netted in the same manner as for an individual and net short-term capital gain, to the extent it exceeds net long-term capital loss, if any, is taxed at the corporation’s regular tax rates. Prior to 2018, a corporation reporting a “net capital gain” (i.e., where net long-term capital gain exceeds net short-term capital loss) was taxed under one of two following methods, depending on which produces the lower tax (the “alternative method” was repealed by the 2017 Tax Act):

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1. Regular method. Net capital gain is included in gross income and taxed at the corporation’s regular tax rates; or
2. Alternative method (prior to repeal). First, a tax on the corporation’s taxable income, exclusive of “net capital gain,” was calculated at the corporation’s regular tax rates. Then a second tax on the “net capital gain” (or, if less, taxable income) for the year is calculated at the rate of 35 percent. The tax on income exclusive of net capital gain and the tax on net capital gain are added to arrive at the corporation’s total tax. For certain gains from timber, the maximum rate is 15 percent.¹

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1. IRC §§ 1201, prior to repeal by Pub. Law No. 115-97 (the 2017 Tax Act), 1222.