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REG 3 > Module 3: Gains and Losses > Flashcards

Module 3: Gains and Losses Flashcards

1
Q

How are the dispositions of capital assets reported?

A

Form 8949 accumulates detailed info about each sale of various investments

Totals from 3949 are transferred to Schedule D (summarizes)

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2
Q

What is the basis formula in determining the gain or loss?

A

Amount realized

= Gain/Loss

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3
Q

What is included in the amount realized?

A
  1. Cash rec’v (boot/loot)
  2. Assumption of debt by buyer (if excess COD = boot/loot)
  3. Property rec’v @ FMV; and
  4. Services rec’v @ FMV
    5.
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4
Q

What are the tax rates for Individual Long Term Capital Gains?

A

20% - Rich
15% - Average
0% - Poor

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5
Q

What is the tax rate for Individual Short Term Capital Gains?

A

Tax rate = Ordinary income tax rate

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6
Q

What is the tax rate for an Unrecaptured Section 1250 Gain?

A

25%

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7
Q

What is the maximum net capital loss deduction for individuals?

A

$3,000 per year

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8
Q

How is excess net capital loss treated?

A

Can only carry forward for unlimited time

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9
Q

How is a personal bad debt loss treated?

A

As a short-term capital loss in year debt becomes worthless

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10
Q

How are worthless stock and securities treated?

A

The cost (or other basis) is treated as a capital loss in the year they became totally worthless

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11
Q

How are capital gains and loses netted?

A
  1. Gains and losses are netted w/in each tax rate group = Net short-term and long-term gains or losses by rate group
  2. Resulting short-term and long-term losses then offset short-term and long-term gains beginning w/highest tax rate group & continuing to lower rates
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12
Q

How are net capital gains of a corporation treated?

A

They are added to ordinary income & taxed at the regular tax rate

No lower (special) tax rate

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13
Q

How are net capital losses of a corporation treated?

A

May not be deducted from ordinary income

Only allowed to be used/offset capital gains

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14
Q

How are excess corporate capital losses treated?

A

Carryback 3 years

Carryforward 5 years

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15
Q

How are excess individual capital losses treated?

can’t undo past bad choices

A

Carryforward indefinitely

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16
Q

How are excess net operating losses treated?

hindsight is 20/20

A

Carryback 2 years

Carryforward 20 years

17
Q

What type of assets do Section 1231, 1245 and 1250 assets relate to?

A

Business used assets (PP&E)

18
Q

What assets are Section 1231 assets composed principally of?

A

Depreciable personal and real property used in taxpayer’s trade/business and held over 12 months

19
Q

What is the benefit under Section 1231?

A

Allows long-term capital gains treatment (tax rates of 0, 15, and 20%) on net Section 1231 gains from sales, exchanges, or involuntary conversions of certain “noncapital” assets

20
Q

Does Section 1231 apply to C corporations?

A

No, all capital gains of a C corp are taxed at ordinary income tax rates

21
Q

How are net section 1231 losses treated?

A

As ordinary losses

22
Q

What are the advantages of an ordinary loss?

A
  1. Capital losses in excess of capital gains cannot be deducted (except $3K allowance)
  2. Section 1231 net loss is deducted in full w/out consideration of capital gains
23
Q

What do section 1245 assets consist of?

A

Depreciable personal properties used in a trade or business for > 12 months

24
Q

Upon the sale of a 1245 asset, what is recaptured as ordinary income?

A

The lesser of gain recognized or all A/D

Any remaining gain is a 1231 gain

25
Q

What do section 1250 assets consist of?

A

Real properties used in a trade/business > 12 months

26
Q

What is recaptured under section 1250 for corporations?

A

Only that portion of depreciation taken on real property that is in excess of straight line

27
Q

What is section 291?

A

The depreciation recapture that now primarily applies to corporations (rather than section 1250)

28
Q

For corporations under 291, what is the total amount of taxable recapture on real property as ordinary income?

A

It is equal to 20% of the lesser of:

  1. The recognized gain or
  2. The accumulated straight line depreciation
29
Q

For corporations, what is the only benefit of getting a capital gain?

A

It is used to offset capital losses

30
Q

What is the section 1250 recapture for individuals?

A

When individual sells 1250 asset at a gain and included the gain w/other 1231 gains, the amount equal to the lesser of:
1. recognized gain on the sale of 1250 asset, or
2. SL A/D on 1250 asset
is taxed at max 25%

Any gain in excess is taxed at preferential rates

31
Q

What is a simple rule of thumb for personal property recapture?

A 
Loss = Treat as ordinary loss (no limitation)
Ordinary income = Gain to extent of A/D
Section 1231 (capital) gain = Gain for sale price in excess of original cost
32
Q

How should you treat a 1231 net loss?

A

Treat like extra depreciation you should have gotten

33
Q

Under the installment method, how is taxable income calculated?

A

By multiplying the annual cash collections by the gross profit percentage

34
Q

INSTALLMENT SALE

Gross profit

A

Sale - COGS

35
Q

INSTALLMENT SALE

Gross profit %

A

Gross profit / Sales price

36
Q 
INSTALLMENT SALE
Gain recognized (taxable income)
A

Cash collections (excluding interest) x Gross profit %

37
Q

Under statutory law, what assets are not considered capital assets?

A
  • Property normally included in inventory or held for sale to customers
  • deprecial personal property and real estate used in trade/business (1231, 1245, 1250)
  • Accounts/notes rec’v arising from sales or services in taxpayer’s business
  • Copyrights, literary, musical, or artistic compositions held by the original artist
  • Treasury stock
38
Q

What do capital assets under statutory law consist of?

A

Property held by the taxpayer for investment, such as:

  • Personal automobile
  • Furniture/fixtures in home
  • Stocks/securities of all types
  • Personal property of taxpayer NOT used for trade/business
  • Real property not used in trade/business
  • Interest in partnership
  • Goodwill of a corporation
  • Copyrights, literary, musical, artistic compositions purchased

REG 3 (5 decks)

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