Capital Gains and Losses

Question 1

How are self created musical works treated?

Answer 1

-As capital assets

Question 2

What is holding period of stocks and securities acquired by purchase?

Answer 2

-Begins on trade date purchased and ends on trade date sold

Question 3

What’s the holding period for an asset where basis is determined by basis of old asset?

Answer 3

-Holding period of old asset tacks on

Question 4

What’s the automatic holding period for non business bad debts?

Answer 4

-Short term

Question 5

How are short term capital gain distributions from a mutual fund treated?

Answer 5

-As ordinary income not included in netting process

Question 6

What’s the order for the netting process?

Answer 6

• Net all STCG/L then all LTCG/L

- Then net both

Question 7

How do individuals treat net capital losses?

Answer 7

• Deduct up to $3,000 per year for AGI and limited to taxable income
• If MFS, limited to $1,500
• Carry forward indefinitely, but not back

Question 8

LTCL’s carried forward offset capital gains in what order?

Answer 8

• Capital gains taxed at 28%
• Capital gains taxed at 25%
• Capital gains taxed at 20% (or 15% for some taxpayers)

Question 9

If combination results in net STCG, net LTCG, what is the tax treatment?

Answer 9

• Net STCG: Taxed as ordinary income

- Net LTCG: Taxed as capital gain (may receive preferential tax treatment)

Question 10

Is dividend income included in the netting process?

Answer 10

No

Question 11

What is the net LTCG rate?

Answer 11

• 39.6% ordinary income taxpayers: 20%
• 15% or lower ordinary income taxpayers: 0%
• All others: 15%

Question 12

Describe the 3.8% net investment income tax.

Answer 12

• Applies to taxpayers w/ AGI over $250,000 MFJ or $200,000 Single/HOH
• Applies to lesser of NII or AGI over thresholds

Question 13

What is the maximum tax rate for net capital gain from “collectibles”?

Answer 13

28%

Question 14

What is a collectible?

Answer 14

-Tangible personalty such as coins, art, antiques, gold, silver purchased for investment purposes

Question 15

Describe the exclusion for Qualifying small business stock.

Answer 15

• Eligible for 50% exclusion, rest taxed at max rate of 28% for avg tax rate of 14%
• Corporation less than $50 million in capital, held for more than 5 years
• Maximum gain eligible for exclusion is greater of 10x basis or $10 million in aggregate

Question 16

Describe the special treatment of Section 1244 stock.

Answer 16

• Gains treated as regular capital gains but losses may be treated as ordinary to maximum of $100,000 MFJ or $50,000 for others
• Domestic small business corporation
• Capital receipts do not exceed $1,000,000 at time stock is issued
• Must be original holder of stock

Question 17

How do you treat losses on on options due to lapse of option?

Answer 17

-Same way as underlying asset

Question 18

What are the tax rates for STCGs and LTCGs for corporations?

Answer 18

-Same as ordinary income rates