Gains and Losses Flashcards
Worthless securities
treated like they were sold on last day of year
Kinds of Bad Debt
Business & Non-Business
Business bad debt is deductible as
business expense
Non-business bad debt is deductible as
short term capital losses
Debt must be
intentional
intention to make it a loan not a gift - can’t make it a gift
must have basis
Debt can be taken when
in year it becomes worthless
Sale of property
selling price - selling expense
taxpayer may not deduct a loss on sell of homestead but…
must file a schedule d even though you can’t take a deduction
may not deduct a loss on a home
Involuntary Conversion
condemn or destroyed property
Installment sale
part of the sale price to be paid at a later time
Installment method
seller reports gain gain under installment method
seller can report gain in the current year
can not use installment for a loss
property sold to replated person
cant use the installment method
installment rules for calculating gain or loss
- sells property less the FMV - Gain or loss is the difference between the basis in the obligation and the amount realized
- any other way it is BASIS OF OBLIGATION - FMV
Partnership A: loss of $2,000
Partnership B: profit of $3,300
Partnership C: loss of $4,100
no other passive income
what amt can be deduct as a loss on individual income tax return
Loss: -2800
Passive activity losses - not deductible on an individual income tax return.
Carried over and used to offset passive income in the future until used up.
so -2800 will be carried over
Julia sold her stock in ABC Company to her sister Hannah for $30,000.
Julia’s tax basis i$33,000.
Hannah sold the stock to an unrelated third party for $32,000 in cash.
What is the income tax effect of Hannah’s sale?
The first transaction results in a disallowed loss of $3,000 ($30,000 less $33,000) investment was sold to a related party.
The second transaction was to an unrelated party and results in a gain of $2,000 ($32,000 less $30,000).
The disallowed loss of $3,000 can then be used to reduce this gain for tax purposes to zero. However, a disallowed loss of this type cannot be used to create a taxable loss. Therefore, although the loss of $3,000 is greater than the eventual gain of $2,000, it can only reduce the gain to zero. That is its limit.
if a business asset is sold but the seller agrees to finance the sale over five years, the seller must?
Record any depreciation recapture income in the year of sale
DO NOT file Form 6252 for sales that are not a gain
John Jacob sold shares to his daughter Emily for $7,000
The original cost had been $11,000 to Jacob
Emily held the shares until September 1 when she started college and sold them to an outside party for $8,300 to help pay for tuition.
What does each party report on their separate federal income tax returns?
Related sale of property
1. loss has to impact in income tax
2. Sold shares to non-related person
Gain for Sara - 7,000-8300=1300
Loss for Dad - 11,000-7,000=4,000
- 4,000 used to reduce gain of 1300.
- remain 2700 loss is lost - not deductable
so no effect on dad or emily’s income taxes - no loss/no gain reported
Qualifying debt is classified
as short term capital loss
The related persons rule regarding asset sales applies to transactions between _________?
The grantor and a fiduciary of a trust
does not include in-laws
Tom Metty sold property to his son in a transaction that was viewed as a related party transactions for income tax purposes. Which of the following is true regarding related party transactions?
Gains from related party transactions are taxed, but losses are not deductible.
Taxable gain using the installment sales method, the seller starts by computing?
- gross profit percentage
profit on sale/sales price - percentage X amount of cash received for that year.
Non-business bad debts are reported as
short term capital losses on Form 8949 in the year the debt becomes worthless.
Does not matter how long the debt has been outstanding.
In-Kind Exchanges
both the property given up and the property received must be held by the taxpayer for investment or for productive use in a trade or business.
An individual taxpayer has capital gain distributions only and no other capital gains. Which of the following satisfies the reporting requirements?
No Schedule D is required
the amount is entered directly on page 1 of Form 1040.
Individuals and other noncorporate taxpayers may deduct up to __________of a capital loss against ordinary income.
Any excess capital loss may be …
$3,000
carried over for an unlimited time period until the loss is exhausted.
no carryover from a decedent to his or her estate.
in January of Year 1, Kirk Kelly bought 100 shares of a listed stock for $8,000. In March of Year 2 when the fair market value was $6,000, Kirk gave this stock to his cousin Clara. No gift tax was paid. Clara sold this stock in June of Year 3 for $7,000. How much is Clara’s reportable gain or loss in Year 3 on the sale of this stock?
The basis of property received by gift is the donor’s basis (transferred or carryover basis).
If the FMV of the property at the time of the gift is lower, however, the basis for purposes of determining loss is the fair market value (Sec. 1015).
Clara’s basis for gain is $8,000, and her basis for loss is $6,000. Therefore, neither gain nor loss is recognized
if a taxpayer has capital gains dividends but has no other capital gain,
No Schedule D is required, and the amount is put directly on Form 1040.
CAPITAL ASSET results in
capital gain/loss
sale/trade of non capital asset results
in ordinary gain/loss
Form 8949
list all capital gains/loss transaction
carried over to Schedule D where gain/loss will be calculated
Short-term gains are listed together on Schedule 1
Long -term gains listed on Schedule 2
If capital losses are more than capital gains
Allowable capital loss deduction is lesser of the two
1. 3000 MFS or 1500 MFS
2. taxpayer’s total net loss shown on Schedule D
may use total net loss up to 3000.
unused amount is carried over to next year
S has long term and short term losses
Short term - 5,000
Long term - 10,000
how to deduction and what order
short term loss used first
1. Deduct 5,000 in current yr
2. carryover 10,000 to next year
Passive Losses
no material participation occurs
not deductible unless taxpayer has income from other passive activities to offset them
bought boat for 100000
Sold boat for 50,0000
boat was for pleasure
Can not deduct personal items because it is a loss
if capital gain - report
the basis for property received for services is its fair market value.
However, the basis used by an employee who received property from an employer at less than its fair market value is
the purchase price plus the amount included in the employee’s income.
The amount included in the employee’s income is the difference between the fair market value and the price paid.
Thus, even in such a case, the basis is the property’s fair market value.
