Amount and Character of Gains and Losses, and Netting Process

Question 1

Section 1244 stock facts

Answer 1

1) must be small business stock
2) individual deducting the ordinary loss must have acquired the stock directly from the corporation
3) Ordinary loss deduction up to $50,000 ($100,000 on a joint return) is allowed per year

Question 2

Capital Losses will offset gains

Answer 2

From Highest Tax rate to next lowest to the next lowest until exhausted

Question 3

Section 1245 requires

Answer 3

that a gain on the sale of equipment will be treated as ordinary income to the extent of all depreciation

Question 4

IRC Section 1202 permits a taxpayer, other than a corporation

Answer 4

to exclude in general 50% of the gain realized on the sale of a qualified small business corporation if the taxpayer holds the stock for more than five years prior to sale

Question 5

IRC Section 1202 states

Answer 5

The amount of gain which may be excluded in this manner is limited, on a “per issuer” basis, to the greater of $10 million or 10 times the taxpayer’s basis in the stock

Question 6

When property is received as payment for services

Answer 6

basis is the fair market value of the property when received

Question 7

Capital assets are defined by exclusion; that is, the Internal Revenue Code (IRC) lists items that are not capital assets. All else would then be capital. The items listed as not capital items are as follows:

Answer 7

1) Property held for resale (inventory)
2) Depreciable property or real property used in a trade or business
3) Accounts or notes receivable acquired in normal business operations
4) A copyright or a literary, artistic, or musical composition in the hands of the creator or anyone who assumes the creator’s basis (property received through gift)
5) U.S. government publications received from the government other than by purchase at the price that it is offered for sale to the public
6) Certain commodities derivative instruments held by a commodities derivatives dealer
7) Any hedging transaction that is clearly identified as such before the close of the day on which it is acquired, originated, or entered into
8) Supplies of a type regularly used or consumed by the taxpayer in the ordinary course of a trade or business of the taxpayer