M3 Gains and Losses Flashcards
Capital gains and losses. See question in Multiple Choice. How are capital losses applied to capital gains (order - 3 items)?
1) FIRST to collectibles gain at the 28%
2) Next to Long-term gains (unrecaptured 1250) at 25%
3) Last to long-term gains at the 15%
Section 1245 (Machinery and Equipment) is what type of gain? Excess?
Ordinary
*Not real property
Any excess is a Section 1231 gain
3 elements of Section 1231 assets
1) Depreciable
2) Real property used in trade or business
3) Held over 12 months
Are installment sales allowed for related parties?
YES
“Excess” of straight-line depreciation is related to what code section?
1250
M/C Example. Sale of furniture has 27,700 realized gain, 20,700 is related to depreciation. How is the gain separated/treated?
*SECTION 1245 (total depreciation deducted is recaptured as ordinary income and remainder is section 1231/long-term capital gain):
20,700 ORDINARY
7,000 LONG-TERM CAPITAL GAIN
Would section 1244 stock be considered ordinary or capital?
ORDINARY
Calculation Rules. How are selling expenses treated?
Reduces the amount realized (i.e. broker’s commissions)
Individual Capital Gains and Loss Rules. Three tax brackets for LONG-TERM Cap gains
Tax rate for SHORT-TERM Cap Gains
20% MAX = RICH
15% rate = AVERAGE
0 = POOR
Short term = ordinary tax rate
Unrecaptured Section 1250 Gain rate?
25%
Collectibles and Small Business Stock rate?
28%
Net Capital loss deduction maximum?
$3,000 - carryforward forever
Section 1250 gain includes what type of property?
REAL (over 12 months) - i.e. warehouse
Installment Sales. Recognize when?
- Gross Profit calc
- Gross profit percentage calc
- Gain recognized (taxable income)
When cash is received
Gross profit = Sale - COGS
Gross profit % = Gross profit / sales price
Gain recognized = Cash collections (excluding interest) *Gross profit %
*INTEREST reported separately as ordinary income
