Capital Gain and Losses Flashcards
What is a capital asset
It is almost everything you own and use for personal or investment purposes.
Example: household furnishings, stocks and bonds held for investment
It is property held by a taxpayer that is NOT
- not business asset
- not a patent or invention
- not account receivable
What is the cost basis
generally cost to the owner
What if you get as a gift or inheritance
The property is considered a capital asset. The Basis is considered the FMV on the date of death - this is a step up in basis.
What is your basis in stocks and bonds
Your purchase price plus commissions and recording or transfer fees
What schedule do you report capital gains and losses
Schedule D
- also include any gains from involuntary conversions
- Nonbusiness bad debt
When do you have a capital gain or loss
When you sell an asset for more than your adjusted basis - capital gain
When you sell an asset for less than your adjusted basis - capital loss
Short term versus Long Term
Less than 1 year - short term
more than 1 year - capital gain
when is capital gain 0%
less than 80K MFJ
When is it 20%
Taxable income > 445K Single and 501MFJ
Netting
First Net all of your short term capital gains and losses
Then net all of your Long term capital gains and losses
Then you net the short term with the long term
If the result is a long term loss - goes against ordinary income up to 3K. The rest is carry forwarded and
If the result is Long term Gain - taxed at 0%, 15%, or 20%
If the result is a Short term gain - Taxed at Ordinary Income rates
If the result is a short term loss - you can apply 3k of loss against ordinary income and carry the rest forward indefinitely
Wash sales rules
If you sell at a loss and then buy something similar or the same in 30 day - the loss is disallowed
The same rules do not apply with gains - you can sell a stock at a gain. Use that gain to offset a loss and then rebuy back the stock at the same gain price. You have now stepped up your basis.
