Capital Gains and Losses

Question 1

Define Capital Assets

Answer 1

All assets that are not ordinary or Section 1231 assets. CA include - self-created musical works are treated as capital assets even though these are creative works. Investment assets and personal use assets are capital assets. Common capital assets include stocks, bonds, real estate, and goodwill of a corporation.

Question 2

How long can excess capital loss be carried forward?

Answer 2

Undefinitely

Question 3

How long can excess capital loss be carried back?

Answer 3

Never!

Question 4

Netting process for capital gains and losses, please explain:

Answer 4

1. Net all short-term capital gains and losses
2. Net all long-term capital gains and losses
3. Net together

Question 5

How much can an individual claim as a deduction for a capital loss yearly?

Answer 5

3 years and its a “for deduction” (above the line) and limited to taxable income

Question 6

If an individual dies and has excess capital loss, what happen with the excess?

Answer 6

Excess cannot be transferred to their estate but can be used in the year of the individuals death.

Question 7

Long term capital losses that have been carried forward offset capital gains in what order”

Answer 7

Capital gains taxed at 28%
25%
20%
15%

Question 8

Define net capital loss

Answer 8

results from combining net short term gains and losses with net long-term gains and losses

Question 9

If the combination of net short -term and net long-term gains and losses results in SHORT term capital gain - this is taxed as:

Answer 9

Ordinary Income

Question 10

If the combination of net short -term and net long-term gains and losses results in LONG term capital gain - this is taxed as:

Answer 10

Net Capital Gain

Question 11

For 2013 what is the new tax rate bracket?

Answer 11

39.6% rate

Question 12

How can corporations use their capital loss deduction?

Answer 12

1. Can only use capital losses to offset capital gain net income; no deduction for net capital losses;
2. Unused losses are carried back three years and forward five years.

Question 13

What is the maximum tax rate for capital gains from the sale of collectibles?

Answer 13

28%

Question 14

Describe the elements of the net capital loss deduction for individuals.

Answer 14

Deductible up to $3,000 per year;
For AGI;
Also limited to taxable income;
Excess loss carries forward; no limit on carryforward period.

Question 15

Netting process for Individuals (CG/L), what rate is the first to be netted and why?

Answer 15

The highest rate is netted first. In the netting process it is to the benefit of the individual not IRS.

Question 16

What is the tax rate for collectables?

Answer 16

28%

Question 17

What is the tax rate for realty?

Answer 17

25%

Question 18

What is the tax rate for securities?

Answer 18

15%

Question 19

What is the day that the purchase or sales of stock and bond actually OCCURS?

Answer 19

Trade date

Question 20

What is the loss incentive for individuals to Invest in new small businesses - section 1244 stock?

Answer 20

First $50k or $100k (MFJ) losses will be treated as ORDINARY LOSSES.

Question 21

Why are ordinary losses better than capital losses?

Answer 21

Individuals: Capital losses have the $3k for net capital losses limit per year
Corporations: Corps can not deduct any of the capital losses ever.

Question 22

What are the two requirements for taking the Section 1244 losses?

Answer 22

1. Individual selling the stock must be the original holder of the stock
2. Total capitalization of the corporation cannot exceed $1M at the time the stock is ISSUED

Question 23

Capital gains is taxed differently, depending on what kind of capital asset, what are they?

Answer 23

Collectibles = 28%
Real Estate = 25%
Securities = 15%

Question 24

Short-term capital gains are taxed at what type of income tax rates?

Answer 24

ORDINARY (which is usually more than long-term capital gain tax rates)

Range from 10 - 39.6%

Question 25

What is the holding period status for a investment that was held for EXACTLY one year?

Answer 25

Short-term holding period

Question 26

What are the long-term capital gains tax rates?

Answer 26

0, 15, 20%

Question 27

What is more advantageous to the taxpayer tax rate ordinary or long-term?

Answer 27

Long term with rates of 0, 15, or 20%

Question 28

When a corporation has unused net capital loss that is carried back or carried forward to another tax year, what type of capital loss is it?

Answer 28

It is treated as a short term capital loss regards less if the short term was sustained.