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CAPITAL GAINS/LOSSES

CAPITAL GAINS/LOSSES. Pub 4491 Lesson 10 Pub 4012 Tab 2 Form 1040 Line 13 Pub 17 Chapters 13-16. SALE OF ASSETS - SCHEDULE D. Key elements of sale: When did you buy it? When did you sell it? What is sales price? What is the cost basis?. COST BASIS OF PROPERTY Pub 17 Ch 13.

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CAPITAL GAINS/LOSSES

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  1. CAPITAL GAINS/LOSSES Pub 4491 Lesson 10 Pub 4012 Tab 2 Form 1040 Line 13 Pub 17 Chapters 13-16

  2. SALE OF ASSETS - SCHEDULE D Key elements of sale: When did you buy it? When did you sell it? What is sales price? What is the cost basis?

  3. COST BASIS OF PROPERTYPub 17 Ch 13 Cost Basis: Introductionpp95 Adjusted Basis: Table 13-1p96 Property Received as a Giftp98 Stocks and Bondsp99 Introduction, Identifying stocks/bonds sold Mutual fund shares – averaging cost

  4. BASIS OF INHERITED PROPERTY Pub 17 Ch 13 From decedent who died prior to/after 2010, basis is generallyp98 Fair Market Value (FMV) at time of death Other alternate valuations out-of-scope From decedent who died in 2010 – only in-scope if basis provided by representative or trustee

  5. SALE OF PROPERTYPub 17 Ch 14 Sales and Trades: Introductionp100 How to Figure Gain or Loss Holding Period: Introductionp105 Long term or short term Property received as a gift Inherited property (see following slide) Stock dividends Wash sales: out-of-scope

  6. SALE OF INHERITED PROPERTY Decedent died prior to/after 2010 Considered long-term no matter how long property actually held In TaxWise, entered “INHERIT” for date acquired Decedent died in 2010 Out-of-scope unless representative or trustee provides cost basis, gain or loss, and holding period

  7. NEW BROKER REQUIREMENTS • Beginning in 2011, brokers must report cost or other basisNEW on Form 1099-B, unless securities sold were noncovered securities • Beginning in 2011, brokers must report whether a gain or loss is short-term or long-termNEW on Form 1099-B, unless the securities sold were noncovered securities

  8. NONCOVERED SECURITIES A security other than stock Stock purchased before 2011 Stock acquired before 2012 in a regulated investment company for which the average basis method is available Stock acquired before 2012 in connection with a dividend reinvestment plan

  9. REPORTING GAINS/LOSSESPub 17 Ch 16 Sale of property bought at various timesp113 Sale expenses Short-term/long-term gains and losses Capital gain distributions Capital Losses: carryoverp114 – be sure to print out Sch D, Wkt 2, for TP Capital gain tax rates (if extended – maximum rate is lower for LT)

  10. SCH D & FORMS 8949 Schedule D has new reporting lines using Forms 8949NEW TaxWise will create appropriate 8949s based on entry in the Capital Gain or Loss Transactions Worksheet (Cap Gain Wkt) New 2012 - Form 8949 has been changed – we now report in separate columns along with description of the sale Stock Symbol Number of Shares Code for adjustment is next to amount

  11. Capital Gain & Loss Wks

  12. Each 8949 generated has two pages, page 1 for short-term and page 2 for long-term Each 8949 reports one of the following types of sales by checking the appropriate code at the top of the form: Box A – Cost basis shown on 1099-B Box B – Cost basis not shown on 1099-B Box C – No 1099-B received SCH D & FORM 8949, cont’d

  13. SCH D & FORM 8949, cont’dTab 2 For each asset sold, the 1099B will have an A/B/C designator A/B/C designators will be entered on the Cap Gain Wkt under a 1099 column Column (f) lists code for adjustments to gain or loss, exclusion of gain on main home, etc - codes listed on 2-16 Column (g) list the amount of the adjustment referenced in column (f)

  14. CAPITAL GAIN WORKSHEETTab 2 TaxWise Capital Gain or Loss Wkt will: Determine whether long/short term Calculate taxable gain/loss Calculate tax liability on worksheet Calculate capital loss carryover Check last-year’s return for carryover (in TW, carryforward data will fill in amount) and report on Sch D

  15. FORM 8949: SAMPLE Form automatically populated by TaxWise from Cap Gain Wkt and transferred to Schedule D.

  16. MULTIPLE TRANSACTIONS (Form 8453) • Instead of listing multiple transactions - enter summary or total on Cap Gain Wkt • Enter summary or total for each code (A-ST, B-ST, C-ST, A-LT, B-LT, C-LT) by broker name • Enter appropriate ST or LT date for Date Sold • Select Sch D; check box at top that will be using Form 8453 to attach the detail listing • Follow site instructions for processing of Form 8453

  17. TAX LIABILITY NET GAIN If net long-term and net short-term are both gains Net long-term taxed at capital gain rates Net short-term gain taxed at ordinary income rates If net long-term gain exceeds net short-term loss, net amount taxed at capital gain rates

  18. SCHEDULE K-1CAPITAL GAINS OR LOSSES In TaxWise, enter directly on Sch D(do NOT fill out K-1) Short term – Line 5 Long term – Line 12 Direct entry provides proper tax treatment of short or long term gains See screen shot in 4012, 2-14

  19. CAPITAL GAINS QUIZ #1 • The taxpayer paid $1,000 for 100 shares of XYZ stock. • What is his cost basis per share in XYZ?

  20. CAPITAL GAINS #1 ANSWER • The taxpayer paid $1,000 for 100 shares of XYZ stock. • What is his cost basis per share in XYZ? $10per share

  21. CAPITAL GAINS QUIZ #2 • The taxpayer who paid $1,000 for 100 shares of XYZ stock received a 2 for 1 stock split. • What is his adjusted basis per share in XYZ?

  22. CAPITAL GAINS #2 ANSWER • The taxpayer who paid $1,000 for 100 shares of XYZ stock received a 2 for 1 stock split. • What is his adjusted basis per share in XYZ? $5per share

  23. CAPITAL GAINS QUIZ #3 • The taxpayer sells all 200 shares of XYZ stock receiving $7 per share minus a total commission of $15. • If the 1099B reports gross proceeds, what will be the sales price and the basis?

  24. CAPITAL GAINS #3 ANSWER • The taxpayer sells all 200 shares of XYZ stock receiving $7 per share minus a total commission of $15. • If the 1099B reports gross proceeds, what will be the sales price and the basis? $1,400selling price $1,015cost basis (gain is $385)

  25. CAPITAL GAINS QUIZ #4 • The taxpayer sells all 200 shares of XYZ stock receiving $7 per share less a total commission of $15. • If the 1099B reports net proceeds, what will be the sales price and the basis?

  26. CAPITAL GAINS #4 ANSWER • The taxpayer sells all 200 shares of XYZ stock receiving $7 per share less a total commission of $15. • If the 1099B reports net proceeds, what will be the sales price and the basis? $1,385selling price $1,000basis (gain is still $385)

  27. SALE OF HOMETab 2, Pub 17 Ch 15 Main Homep107 Ownership and use testsp109 May be nontraditional home Figuring Gain or Loss, Selling Pricep107 Amount Realized (on sale) Determining (Cost) Basisp108 Maximum Exclusionp109

  28. SALE OF HOME QUIZ John purchased a condo in 2003 and lived in it until 2009 Jane was divorced in 2005 and has lived in her home since John and Jane married in 2009 and began living together in her home John sold his condo in 2011 for a $300,000 gain

  29. SALE OF HOME QUIZANSWERS Does John qualify to exclude the gain if MFJ? Ownership test - yes, owned since 2003 Use test - was not Jane’s main home for 2 years during 5 years preceding sale, so can only exclude up to $250,000

  30. LET’S PRACTICE IN TAXWISE 4491-W Under direction of the instructor: Open the return for Kent in TaxWise From Pub 4491-W, enter stock sales for Kent, Advanced Comprehensive Problem C Verify tax liability

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