TAX- Capital Gains and Losses

Question 1

What art the most common type of capital assets?

Answer 1

Personal Life, Investments, Goodwill, Patents

Question 2

Can capital losses be defined as long-term and short-term? How do you determine?

Answer 2

Long- Term: More than one year

Short-Term: Less than one year

*If it has been held exactly one year, still STCG/L

Question 3

What is the netting process for capital gains and losses?

Answer 3

1) Net the Short Term Gains/Losses
2) Net Long Term Gains/Losses
3) If the signs are opposite- you net one step further. Whatever item is the largest, will determine whether it is Long-Term or Short-Term

Question 4

How are short-term capital gains taxed? (individuals)

Answer 4

Ordinary Income

Question 5

If the netting process produces a LTCL or STCL for an individual, how much can that individual deduct?

Answer 5

$3,000 Per Year

Question 6

What is the carry forward period for capital losses? (Individuals)

Answer 6

Indefinite

Question 7

What are the rules for deducting capital losses for a corporation?

Answer 7

Can only offset capital gains, they cannot deduct.

Question 8

What is the carry forward period for capital losses? (corporation)

Answer 8

Back three years, forward 5 years

Question 9

For individuals, what is the preferential rates for Long Term Capital Gains?

Answer 9

Lower tax brackets- 0%

Most tax payers are at a maximum of 15%

Question 10

What is the 3.8% Surtax? What are the thresholds? What is the formula you need to memorize?

Answer 10

3.8% surtax for long-term capital gains (because of the affordable health care act).

Joint AGI>250,000
Single/HOH AGI>200,000

This applies to ANY TYPE OF NET INVESTMENT INCOME

MEMORIZE:
The 3.8% tax apples to the lesser of:
(a) Net investment Income or
(b) The excess of AGI over the AGI thresholds (mentioned above)

Question 11

Capital gains and losses may be taxed at different tax rates, how can a tax payer reduce the higher tax rates on these gains in their favor?

Answer 11

The taxpayer can use capital losses against capital gains at the higher tax rates first rather than the lower rates.

Question 12

What is the tax rate for collectibles (i.e. coins, antiques, show cars)

Answer 12

28%

Question 13

What is the tax rate for realty (buildings that an individual owner)

Answer 13

25%

Question 14

Personal casualty and theft gains and losses, how are these treated?

Answer 14

1) If Net Gains > Net Losses then it is treated as a capital gains
2) Losses are only deductible If it is a federal disaster area

Question 15

What are 1244 losses? What qualifies?

Answer 15

QUALIFICATIONS:

1) Original owner of the stock
2) Total amount of stock outstanding didn’t exceed $1,000,000 (smaller companies)

If you sell 1244 at a gain –> LTCG

IF you sell 1244 at a loss –> 50,000 (single) as ordinary loss, and $100,000 married

Question 16

What is Qualifying Small Business Stock?

Answer 16

Defined has having less than $50 million in capital, held for more than 5 years.

Your gain be EXCLUDED from taxation to the following limit- greater of

• 10% taxpayer basis in the stock
• $10,000,000