Basic property transactions.

Question 1

Realized gain

Answer 1

Amount realized from the sale - Adjusted basis in property

Question 2

Difference between ordinary gains and losses

Answer 2

ordinary gain is fully deductible, ordinary loss is fully taxable…. Capital gains are difference

Question 3

Capital assets

Answer 3

any property held by the taxpayer other than property listed in 1221. Anything that isn’t inventory, accounts receivable, and depreciable property or real estate used in business.

If it were one of the things listed above in section 1221, then that would be ordinary loss/gain.

Question 4

Short-term gains

Answer 4

held for one year or less… max rate 35%

Question 5

Long-term gains (held for more than one year)

Answer 5

Collectibles at max rate of 28%, Depreciable property max at 25%, and all other long-term capital gains at 20, 15, 5, or 0%

When the taxpayer’s regular tax rate exceeds the applicable alternative rate. The 5 and 0% rates only apply when the taxpayer’s regular tax bracket is 15% or less. If so and the sale or exchange took place prior to 2008, it’s 5… if after 2007, it’s 0%.

Question 6

Determination of net capital gain

Answer 6

The capital losses are aggregated by holding period (short-term and long-term and applied agains the gains in that category. If excess losses result , they’re shifted to the category carrying the highest tax rate.

A net capital gain occurs if the Net long-term capital gain exceeds the net short-term capital loss.

Question 7

Treatment of Net Capital loss

Answer 7

Net capital loss can be used to offset ordinary income up to 3000 (or 1500 for MFS). If a taxpayer has both short and long term capital losses, the short-term category is used first to arrive at 3000. Any remaining net capital loss is carried over indefinitely until exhausted. When carried over the excess capital loss retains its classification as short- or long- term.