© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax.

Introduction to Capital Gainsand Losses

So YouSold SomeProperty … ...

(continued)

II. Other Information Needed?

III.III. Holding Period

A. Short-term

B. Long-term

Handout Part 2Assume that on February 14 of the current year, a donee sold an investment property she had received as a gift on January 8. The donor had purchased the property on October 26, 1974. State the amount and class (ST or LT) of capital gain or loss realized.

Handout Part 2Assume that on February 14 of the current year, a donee sold an investment property she had received as a gift on January 8. The donor had purchased the property on October 26, 1974. State the amount and class (ST or LT ) of capital gain or loss realized.

Sales Price xxxx

Basis xxxx

+ Gift Tax xx xx

Gain or (Loss) xxx

Handout Part 2 -- 1)Assume that on February 14 of the current year, a donee sold an investment property she had received as a gift on January 8. The donor had purchased the property on October 26, 1974. State the amount and class (ST or LT ) of capital gain or loss realized.

Sales Price

Basis 11,000

+ Gift Tax xxx

Gain or (Loss)

13,000

50 11,050

Sales Price

Basis 11,000

+ Gift Tax xxx

Gain or (Loss)

13,000

50 11,050LT

Sales Price

+ Gift Tax

Gain or (Loss)

Sales Price 9,000

Basis 1?,000

+ Gift Tax 0

Gain or (Loss)

Sales Price 9,000

Basis 10,000

+ Gift Tax 0 10,000

Gain or (Loss)

Sales Price 9,000

Basis 10,000

+ Gift Tax 0 10,000

Gain or (Loss) (1,000)

ST or LT?

1974 1/8 2/14

$11,000 $10,000 $9,000

Sales Price 9,000

Basis 10,000

+ Gift Tax 0 10,000

ST or LT?

Sales Price 9,000

Basis 10,000

+ Gift Tax 0 10,000

1974 1/8 2/14

$11,000 $10,000 $9,000

Classifying TransactionsMake Two Piles

Classifying TransactionsSum Each of the Piles

Classifying TransactionsName the Two Results

NLTCG(L)NSTCG(L)

Classifying TransactionsCombine the Two Results?

NLTCG(L)NSTCG(L)

+G +G- L - L

Classifying Transactions

NLTCG(L)NSTCG(L)

Don’t Combine the Two Results

Don’t

Classifying Transactions

NLTCG(L)NSTCG(L)

Don’t Combine the Two Results

Don’t

Classifying TransactionsCombine the Two Results

NLTCG(L)NSTCG(L)

+G -LNet Net

NLTCG(L)NSTCG(L)

-L +GNet Net

Problem 5-48, page 5-45

Problem 5-48, Situation 1

$40,000

(2,000)

(2,500)

$40,000

(2,000)

(2,500)

$40,000

(2,000)

(2,500)

$40,000

(2,000)

(2,500)

$40,000

(2,000)

(2,500)

$40,000

(2,000)

(2,500)

$40,000

(2,000)

(2,500)

$40,000

(2,000)

(2,500)

$40,000

(2,000)

(2,500)

$40,000

(2,000)

(2,500)

$40,000

$45,000AGI (after)

$40,000

(2,000)

(2,500)

$40,000

$45,000AGI (after)

Special Treatmentof Long-Term Gains

1954 1986 1997

LTCGD alternate tax rate

reduced rates**

$50,000

(5,000)

15,000

(4,000)

$50,000

(5,000)

15,000

(4,000)

$50,000

(5,000)

15,000

(4,000)

(3,000)

$50,000

(5,000)

15,000

(4,000)

(3,000)

$50,000

(5,000)

15,000

(4,000)

(3,000)

11,000

$50,000

(5,000)

15,000

(4,000)

(3,000)

11,000

NLTCG(L)NSTCG(L)

-L +GNet Net

$50,000

(5,000)

15,000

(4,000)

(3,000)

11,000

$50,000

(5,000)

15,000

(4,000)

(3,000)

11,0008,000

$50,000

(5,000)

15,000

(4,000)

(3,000)

11,000

$50,000

(5,000)

15,000

(4,000)

(3,000)

11,000

$50,000

(5,000)

15,000

(4,000)

(3,000)

11,000

$50,000

8,000 8,000

$50,000

(5,000)

15,000

(4,000)

(3,000)

11,000

$50,000

$58,000AGI (after)

$50,000

(5,000)

15,000

(4,000)

(3,000)

11,000

$50,000

$58,000AGI (after)

8,000*

Net Capital Gainexcess of LT gains

over ST losses

LTG- STL

Skip Situation 3

Go to Situation 4

$60,000

(4,000)

10,000

(12,000)

$60,000

(4,000)

10,000

(12,000)

$60,000

(4,000)

10,000

(12,000)

$60,000

(4,000)

10,000

(12,000)

$60,000

(4,000)

10,000

(12,000)

(2,000)

$60,000

(4,000)

10,000

(12,000)

(2,000)

$60,000

(4,000)

10,000

(12,000)

(2,000)

$60,000

(4,000)

10,000

(12,000)

(2,000)(1,000)

$60,000

(4,000)

10,000

(12,000)

(2,000)

$60,000

(1,000)

$60,000

(4,000)

10,000

(12,000)

(2,000)

$60,000

(1,000) (1,000)

$60,000

(4,000)

10,000

(12,000)

(2,000)

$60,000

(1,000)

$59,000AGI (after)

(1,000)

$70,000

(15,000)

(4,000)

$70,000

(15,000)

(4,000)

$70,000

(15,000)

(4,000)

(9,000)

$70,000

(15,000)

(4,000)

(9,000)

$70,000

(15,000)

(4,000)

(9,000)

$70,000

(15,000)

(4,000)

(9,000)

$70,000

(15,000)

(4,000)

(9,000)

5,000(4,000)

$70,000

(15,000)

(4,000)

(9,000)

$70,000

(4,000)

$70,000

(15,000)

(4,000)

(9,000)

$70,000

(4,000) (3,000)(Annual maximum)

$70,000

(15,000)

(4,000)

(9,000)

$70,000

(4,000)

$67,000AGI (after)

(3,000)

$70,000

(15,000)

(4,000)

(9,000)

$70,000

(4,000)

$67,000AGI (after)

(3,000)

$70,000

(15,000)

(4,000)

(9,000)

$70,000

(4,000)

$67,000AGI (after)

(3,000)

Carryover = ? ? ? ?

$70,000

(15,000)

(4,000)

(9,000)

$70,000

(4,000)

$67,000AGI (after)

(3,000)

STCL Carryover = $1,000

$70,000

(15,000)

(4,000)

(9,000)

$70,000

(4,000)

$67,000AGI (after)

(3,000)

How long?

$70,000

(15,000)

(4,000)

(9,000)

$70,000

(4,000)

$67,000AGI (after)

(3,000)

Indefinitely

$70,000

(15,000)

(4,000)

(9,000)

$70,000

(4,000)

$67,000AGI (after)

(3,000)

What if LTL were $16,000?

$70,000

(15,000)

(16,000)

(9,000)

$70,000

(4,000)

$67,000AGI (after)

(3,000)

$70,000

(15,000)

(16,000)

(9,000)

(7,000)

$70,000

(4,000)

$67,000AGI (after)

(3,000)

$70,000

(15,000)

(16,000)

(9,000)

(7,000)

$70,000

$67,000AGI (after)

$70,000

(15,000)

(16,000)

(9,000)

(7,000)

$70,000

$67,000AGI (after)

(3,000)

$70,000

(15,000)

(16,000)

(9,000)

(7,000)

$70,000

$67,000AGI (after)

Carryover(s)?

(3,000)

$70,000

(15,000)

(16,000)

(9,000)

(7,000)

$70,000

$67,000AGI (after)

Carryover(s)?

$6,000 ST

$7,000 LT

(3,000)

Problem 5-61

Painting $2,000 - $50 = $1,950Ordinary Income

Stock $28,500 - $30,000 = ($1,500) LT

Land $25,000 - $30,000 = ($5,000) ST

Problem 5-61

Stock $28,500 - $30,000 = ($1,500) LT

Land $25,000 - $30,000 = ($5,000) ST

Capital AssetsSection 2619

Capital assets include all assets held by the taxpayer except:

1. Stock in trade of the taxpayer or other property of a kind that would properly be included in the inventory of the taxpayer if on hand at the close of the tax year.

2. Property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business.

3. Accounts or notes receivable acquired in the ordinary course of a trade or business for services rendered or from the sale of any properties described in 1. and 2. above.

4. Depreciable property used in the taxpayer's trade or business.

5. Real property used in the taxpayer's trade or business.

6. Certain copyrights, and literary, musical or artistic compositions

7. Letters, memoranda or similar property in the hands of the writer, donees of the writer and persons to whom they were sent or for whom they were produced.

8. U.S. government publications (Congressional Record) received from the government without charge or below the price sold to the public, in the hands of the recipient and carryover_basis transferees (Code Sec. 1221)

Problem 5-61

Stock $28,500 - $30,000 = ($1,500) LT

Land $25,000 - $30,000 = ($5,000) ST

Problem 5-61

Stock $28,500 - $30,000 = ($1,500) LT

Land $25,000 - $30,000 = ($5,000) ST

Problem 5-61

Stock $28,500 - $30,000 = ($1,500) ??

Land $25,000 - $30,000 = ($5,000) ST

Determining the Basis of Assets

Asset acquiredby purchase?

cost + capital improvements - accumulated depreciation = adjusted basis

Federal gift tax paid(basis limited to FMV on date of gift)

Fed. Gift tax x“net appreciation”1

total value of prop.2

donor’s adjusted basis(“date” basis = donor’s date)

FMV on date of gift

(“date” basis = date of gift)

basis for

donor’s adj.basis plus

FMV > donor’s

adjusted basis?

All dispositions yield

LONG TERM results

FMV 6 months

after date of death

FMV on date of death

alt. valuation

date elected?

Acquired

by gift?

fter 3

fter 1

(inheritance)

lossafter

12/31/76

1 “net appreciation” = (FMV - donor’s adjusted basis)2 FMV - annual exclusion

Determining the Basis of Assets

Asset acquiredby purchase?

cost + capital improvements - accumulated depreciation = adjusted basis

Federal gift tax paid(basis limited to FMV on date of gift)

Fed. Gift tax x“net appreciation”1

total value of prop.2

donor’s adjusted basis(“date” basis = donor’s date)

FMV on date of gift

(“date” basis = date of gift)

basis for

donor’s adj.basis plus

FMV > donor’s

adjusted basis?

All dispositions yield

LONG TERM results

FMV 6 months

after date of death

FMV on date of death

alt. valuation

date elected?

Acquired

by gift?

fter 3

fter 1

(inheritance)

lossafter

12/31/76

1 “net appreciation” = (FMV - donor’s adjusted basis)2 FMV - annual exclusion

Problem 5-61

Stock $28,500 - $30,000 = ($1,500) LT

Land $25,000 - $30,000 = ($5,000) ST

Problem 5-61

Stock $28,500 - $30,000 = ($1,500) LT

Land $25,000 - $30,000 = ($5,000) ST

1999 4/8 6/30

$43,000 $30,000 $25,000

Problem 5-61

Stock $28,500 - $30,000 = ($1,500) LT

Land $25,000 - $30,000 = ($5,000) ST

Problem 5-61

Stock $28,500 - $30,000 = ($1,500) LT

Land $25,000 - $30,000 = ($5,000) STa. NSTCL

Problem 5-61

Stock $28,500 - $30,000 = ($1,500) LT

Land $25,000 - $30,000 = ($5,000) ST

b. NLTCL

Problem 5-61

c. effect on AGI?

AGI $40,000

- NSTCL 5,000

Problem 5-61

c. effect on AGI?

AGI $40,000

- NSTCL (limit) 3,000

Problem 5-61

d. carryforward?NSTCL $5,000

Allowed 3,000

Carryforward $2,000

NLTCL $1,500

Special Treatmentof Long-Term Gains

1954 1986 1997

LTCGD alternate tax rate

reduced rates**

Rates of Tax“simplified” version

28% collectibles

25% unrecaptured Sec. 1250 gain

20% max for ANCG after 5/6/97

18% after 12/31/00 if held > 5 years

10% if regular rate is 15%

28% collectibles

15% max for ANCG after 5/2003

28% collectibles

5% if regular rate is 10% or 15%

28% collectibles

repealed

28% collectibles, and Sec. 1202 stock

Rates of TaxProblem 5-43

A gain from stock held 7 months 28%

B gain from antique clock held 6 yrs 28%

C gain from stock held 3 years 20%

A gain from stock held 7 months 33%1

1 TP’s regular marginal rate

“Collectibles”

* LT capital gain rate

C gain from stock held 3 years 15%*

* FYI was 20% before ’03

Problem 5-49

Problem 5-49 -- 2010

$40,000

(9,000)

(5,000)

$40,000

(4,000)

$37,000AGI (after)

(3,000)LT

<LT>6,000

(5,000)

ST (1,000)

Problem 5-49 -- 2011

$50,000

(3,000)

(11,000)

$50,000

(10,000)

$47,000AGI (after)

(3,000)LT

<LT>10,000

(21,000)

ST (1,000)

LT (7,000)

Problem 5-49 -- 2012

$60,000

(5,000)

(5,800)

$60,000

$57,000AGI (after)

(3,000)LT

<LT>2,200

(1,000)LT (7,000) LT (800)

(3,800)

Problem 5-49 -- 2013

$70,000

10,000

(12,000)

(2,000)

(4,300)

$70,000

$67,000AGI (after)

(2,000)

<LT>6,000

(9,500)LT (800)

(1,000)

LT (3,300)

Problem 5-49 -- 2014

<LT>???

???LT (3,300)

8Finally, brothers [and sisters], whatever is true, whatever is noble, whatever is right, whatever is pure, whatever is lovely, whatever is admirable – if anything is excellent or praise-worthy – think about such things 9Whatever you have learned or received or heard from me, or seen in me – put it into practice. And the God of peace will be with you.

Philippians 4:8-9

8Finally, brothers [and sisters], whatever is true, whatever is noble, whatever is right, whatever is pure, whatever is lovely, whatever is admirable – if anything is excellent or praise-worthy – think about such things 9Whatever you have learned or received or heard from me, or seen in me – put it into practice. And the God of peace will be with you.

Philippians 4:8-9

Have a great life!

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax.

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