Transcript VITA/TCE

Lesson 12
Sale of Stock & Other
Investment Property
Objectives
• Compute adjusted basis of stock or other
investment property
• Determine if an asset’s holding period is
long-term or short-term
• Calculate the taxable gain or deductible
loss using the Schedule D
• Calculate the correct tax liability
Intake/Interview Process
Form 13614 – Intake and Interview Sheet Income Section
Investment Property
Property that produces investment income
• Stocks
• Bonds
• Mutual Funds
• Treasury Bills & Notes
Basis of Investment Property
• The basis of an asset is usually its cost
• Basis is +/- by certain events, resulting in
adjusted basis
• Adjustments Include:
• Brokerage commissions paid (buying &
selling)
• Stock splits & tax-fee stock dividends
• Reinvested dividends
• Reinvested capital gain distributions
Sale of Investment Property
Capital gains or losses are only reported
when a sale, exchange, or other disposition
of investment property occurs.
• Redemption of Stock or Bonds
• Sale/Exchange of Mutual Fund Shares
• Worthless Securities
• Other Sales & Trades
Identifying Shares Sold
• Specific Identification
• Identification Not Possible
• Mutual Fund Shares
− Cost Basis
− Average Basis
Holding Period
• Stock held for more than 12 months is
considered long-term property
• Stock held for 1 year or less has a shortterm holding period
• Inherited property (long-term property)
• Nontaxable stock dividends and stock splits
(same holding period as the original stock)
Determining Gain or Loss
• Amount realized – adjusted basis =
gain/loss reported on Schedule D
• What You Will Need
−Form 1099-B, Proceeds From Broker and
Barter Exchange Transactions or
consolidated brokerage statement
−Date property was acquired
−Taxpayer’s records of basis
Commissions and Fees
• Commissions paid when investment
property is purchased - add to basis
• Commissions paid at the time of sale may
increase basis
− If 1099-B shows gross proceeds, add the
commission to the basis
− If 1099-B shows net proceeds, no adjustment to
basis is necessary
Reporting Transactions on
the Tax Return
• Capital gains & losses are reported on
Schedule D
• Schedule D has three sections
− Part I - Short-term transactions
− Part II - Long-term transactions
− Part III – Summary
• If space is needed to report additional
transactions, use Schedule D-1
Reporting Transactions on
the Tax Return - cont’d
Combine net S-T capital gain/loss with net
L-T capital gain/loss (Part III)
• If losses exceed gains, the taxpayer has a
total net capital loss
• If gains exceed losses, the taxpayer has a
total net capital gain;
Capital Gain Distributions
Reported on Form 1099-DIV, box 2a
•If taxpayer received only capital gain
distributions, Schedule D not required
•If taxpayer sold investment property or had
unused capital loss carryovers, report
capital gain distributions on line 13 of
Schedule D
13
Total Net Capital Loss
• If taxpayer has a net capital loss,
claim the lesser of:
1. The total net loss or
2. $3,000 ($1,500 – if MFS)
• Capital Loss Carryovers
1.Carryover until used up
2.Retain character
Total Net Capital Gain
•
•
•
If taxpayer has a net capital gain,
apply capital gains tax rates
Capital Gains Tax Rates: 5% - 28%
To figure Capital Gains Tax use:
− Schedule D Tax Worksheet or
− Qualified Dividends & Capital Gains
Tax Worksheet
Quality Review (QR)
Form 8158 – Quality Review Checklist Income Section
Lesson Summary
•
Basis of investment property is cost
− Adjusted basis is cost +/- adjustments
such as commissions
•
Holding period is classified as either
– Short-term (one year or less) or
– Long-term (more than one year)
Lesson Summary – cont’d
• Capital gain or loss is computed as:
Amount Realized minus Adjusted Basis
• Capital Gains/Losses are reported on
Schedule D, Form 1040
• Net capital losses are deductible up to a
yearly limitation, the lesser of:
− the loss amount or
− $3,000 ($1,500 if MFS)
Lesson Summary – cont’d
•
Net capital gains are taxed at a lower,
capital gains tax rates computed on
− Schedule D Tax Worksheet, or
− Qualified Dividends & Capital Gains
Tax Worksheet
•
Schedule D is not required if the
taxpayer has only capital gain
distributions from 1099-DIV to report