Capital Gains and Losses

Question 1

When is it long term? Short-term?

Answer 1

If held more than a yr, LT.

One yr or Less: ST.

Question 2

What are 4 categories of capital G/L?

Answer 2

1. LT capital gain - preferential rates (individuals only)
2. LT capital loss
3. ST capital gain - ordinary rates
4. ST capital loss

Question 3

How do you net capital G/L?

Answer 3

Net ST and LT items separately.

If there are still gain and loss, net again.

Question 4

When can a individual deduct capital loss? Limit?

Answer 4

When there is loss after netting ST and LT capital G/L.

Up to $3,000 per yr. (single or married).

Question 5

Where can individual capital loss be applied to? What happens to excess?

Answer 5

To AGI (limited to taxable income).
Carry forward with unlimited time.

Question 6

Where can a corporation apply its capital loss to?

Answer 6

Only to capital gain net income.

Question 7

Corporation: Is unused capital loss ST or LT? Carry back and carry forward time frame for expiration?

Answer 7

ST.
Carry back: 3 yrs
Forward: 5 yrs

Question 8

Individuals: What is the maximum tax percent for net LT capital gain? If tax payer’s regular tax rate is 15% or lower? If in the 39.6% bracket?

Answer 8

15%.
0%.
20%.

Question 9

What are 2 categories that 3.8% surtax (from ACA) is added to?

Answer 9

1. Joint filers with modified AGI more than $250,000

2. Single/head-of-household w/MAGI >$200,000

Question 10

Where is the 3.8% surtax is applied to?

Answer 10

Lesser of (a) net investment income or (b) the excess of AGI over the AGI thresholds.

Question 11

What are other items the 3.8% surtax applied to?

Answer 11

Qualified dividends, passive interest, rents, royalties, and flow through income (passive).

Question 12

If the net capital gain is because of straight-line depreciation on building, what is the maximum tax rate? What are tax bracket?
For collectibles? Bracket?

Answer 12

25%. 25% and up.

28%. 28% and up.

Question 13

Is 3.8% surtax applicable to those in 10-25% bracket? 28%? 33%? Up?

Answer 13

10-15%: no.
28%: possibly.
33%: likely.
Up: Yes.

Question 14

Which LT gains is offset first against net ST or LT loss?

Answer 14

Those taxed at the highest rate.

Question 15

Personal casualty/theft: How are G/L treated if gain exceed losses (after the $100 floor for each loss)?

Answer 15

All G/L are treated as capital G/L, ST or LT depending on holding period.

Question 16

Personal casualty/theft: How are G/L treated if losses exceed gains (after the $100 floor for each loss)?
Ex: how much is the deduction when: G: $15,000, L:$25,000, AGI: $40,000?

Answer 16

The losses (1) offset gains, and (2) are an ordinary deduction from AGI to the extent in excess of 10% of AGI.
[$25,000-$15,000-(10%x$40,000)]=$6,000.

Question 17

Stocks/bonds: When is the date of purchase/sale?

Answer 17

Trade date (the purchase/sale actually occurs).

Question 18

Stocks/bonds: What is the settlement date?

Answer 18

The stock is delivered or that pmt is actually made.

Question 19

Which date is it use to determine the holding period, trade date or settlement date?

Answer 19

Trade date.

Question 20

Mutual funds: Is capital gain distribution generally ST or LT? Which form would it be reported?

Answer 20

LT on Schedule D.

Question 21

If a mutual fund distributes ST capital gain, where will it be reported and under which category?

Answer 21

Form 1099-DIV as dividend income.

Question 22

Section 1244 stocks: how would losses be treated? Gains?

Answer 22

L: First $50,000 of losses ($100,000 for married filing joint) from the sale will be treated as an ordinary loss.
G: LT capital gains.

Question 23

What are 3 qualifications of Section 1244 stocks? Does it have to be common or preferred stock?

Answer 23

1. The individual selling the stock must be the original holder.
2. The total capitalization of the corporation can’t exceed $1,000,000 at the time of stock issuance.
3. Must be issued by a domestic corporation.
   No, either is ok.

Question 24

What is qualifying small business stock (QSBS)? What is the benefit re: gain? Limitation?

Answer 24

• Stock of a small business corporation (less than $50 million in capital).
• 100% of gain can be excluded if held for more than 5 yrs.
• The maximum gain eligible for exclusion is greater of; 10 times the TP’s basis in the stock or $10 million.

Question 25

QSBS: what are 2 time frame that is eligible exclusion less than 100%?

Answer 25

1. 50%: purchased before Feb 18, 2009.

2. 75%: purchased after Feb 17, 2009 and before Sept 28, 2010.

Question 26

What form is used to report capital G/L?

Answer 26

Form 8949.

Question 27

Form 8949: For Part I, if TP has more than 1 answer applicable for box ABC, what must be done?

Answer 27

TP must complete another Form 8949.

Question 28

Where is the total on Form 8949 transferred to?

Answer 28

Schedule D (Form 1040).

Question 29

Is business bad debts ST or LT?

Answer 29

ST.

Question 30

What is the classification/tax treatment when personal used property is sold for gain? For loss?

Answer 30

The definition of “capital assets” includes investment property and property held for personal use (if sold at a gain). Because the painting was held for more than one year, the gain from the sale of the painting must be reported as a long-term capital gain. Note that if personal-use property is sold at a loss, the loss is not deductible.