Transcript Slide 1
Module NJ 1.10
Capital Gains & Losses (Including
Sale of Home)
Pub 17 Chapters 13-16
Pub 4012 Tab 2
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Stock Sales – Schedule D
Key elements of stock sale
When was it bought?
When was it sold?
What was the sales price?
What was the cost basis?
Note: Use Tax Wise Capital Gain Worksheet
for entering data for each transaction
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Stock Sales – Capital Gains
TaxWise
Determines whether long/short term
Calculates taxable gain/loss
Calculates tax liability on worksheet
Calculates capital loss carryover
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Cost Basis
Cost basis is usually cost plus commissions (buy
and sell)
FIFO unless specified before sale
Original basis is adjusted by
Stock split or non-taxable stock dividend
Cost basis of taxable stock dividends and
Dividends Reinvestments (DRIP) is the price of the
stock on the distribution date
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Cost Basis (cont)
The cost basis is not reported on the 1099-B
Typical sources of the cost basis
Year end broker activity statement may provide
information as a result of the sale
Taxpayer records
Average of stock price during approximate period of
purchase, if no other records are available
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Out of scope – determining basis for employee stock
options
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Sales Price
Reported on
1099 B - Proceeds From Broker and Barter
Exchange Transactions
1099 Consolidated Statement
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Sales Commissions
Commission paid will affect the basis
If 1099B reports sale as gross, commission will
be added to basis.
If 1099B reports sale as net, no adjustment to
basis is needed.
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Gross / Net Proceeds
2007
Gross proceeds
– Add fees to
cost to get basis
Net proceeds –
Use original
cost basis
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1099 Consolidated Statement
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Cost Basis – Question #1
The taxpayer paid $1,000 for 100 shares of
XYZ stock. What is his basis per share in
XYZ?
Answer - $10 per share
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Cost Basis – Question #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?
Answer - $5 per share
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Commissions – Question #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?
Answer: $1,400 selling price minus $1,015
cost basis (gain=$385)
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Commissions – Question #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?
Answer: $1,385 selling price $1,000 basis
(gain is still $385)
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Long vs Short Term
Stock held one year or less is short-term – begin
counting the day after the trade date
If sale of all shares bought on various dates at
different prices (multiple blocks) and all were long
term
Enter “Various” in Tax Wise Purchase Date column
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This type of transaction will automatically be reported as Long
Term
Enter actual transaction date(s) if short term
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Long vs Short Term (cont)
Shares acquired in tax-free stock dividend
or stock split have same holding period as
original shares
Holding period for taxable stock dividends
and Dividend Reinvestments (DRIP) are the
date of declaration.
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They do not revert to the holding period of the
original stock
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Problem #1 – Stock Split
6/01/08: 100 shares of XYZ bought at $100 per
share
Cost basis is $100 x 100 shares = $10,000
6/01/09: 2 for 1 (2:1) Stock Split
All 200 shares have the $10,000 basis and all have
the same purchase date
If sold on 6/01/09, is the transaction a short or
long term transaction.
ANSWER: Short term i.e. 6/02/08 to 06/01/09 is
less than a year
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Problem #2 – Reinvested Taxable
Dividend
9/20/07: 200 shares of XYZ bought at $40 per
share. Basis is $8,000
6/20/09: 20 shares worth $30/share are received
as DRIP (20 at $30=$600)
The cost basis of the original 200 share remains at
$8,000 with an acquisition date of 9/20/07
The cost basis of the 20 shares received as a DRIP
is $600 and has the acquisition date of 6/20/09
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Capital Gains Tax Rates
(0% new in 2008, extended thru 2010)
CAPITAL GAINS RATES
FOR 2009
TAXPAYER IN:
10% or 15% Brackets
Other Brackets
ORDINARY RATE
ORDINARY RATE
LONG TERM
(Greater than
12 months)
0% in 2009
15%
QUALIFIED DIVIDENDS
0% in 2009
15%
SHORT TERM
(12 months or less)
NOTES: WHEN USING VA/RI/OUS OR IN/HE/RIT AS PURCHASE DATE,
TAXWISE ASSUMES THAT THE TRANSACTION IS LONG TERM (MORE THAN
ONE YEAR)
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Tax Liability Net Loss
Net loss can offset all gains, plus
Up to $3,000 can be used to reduce other
taxable income in the current year ($1,500 if
MFS)
The amount in excess of $3,000 (or $1,500
if MFS) is carried forward to the next year
Note: Loss not allowed on NJ return
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Capital Loss Carry Forward
Check prior year Schedule D or related worksheet to
determine carryover loss
Carryover losses keep their short-term or long-term
classification
Carryover losses are combined with the gains and losses
that actually occur in the subsequent year
There is no limit to how many times a loss can be carried
forward but the maximum loss (i.e. $3,000) must be used
each year even if no there is no tax liability to offset. If not
used, the $3,000 deduction is lost
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Capital Loss Carry Forward
Schedule D – Worksheet 2
2008
Short Term Carry
Forward
Long Term
Carry Forward
Required For Next Years Returns
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Capital Gain Distributions
These distributions result when mutual funds that
sold stock pass resulting gains to TP each year
Treated as long-term capital gain
If these are the only capital gains, no Schedule D
required
Reported on 1099-DIV or broker’s Consolidated
Statement
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1099-DIV
Dividends and Distributions
2008
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1099 Consolidated Statement
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Demutualization
Demutualization occurs when insurance
company is changed from a “mutual
company” to a “stock company” and issues
stock to policy holders in the new company
Basis of stock issued is always $0.00
When sold, stock is always long term
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SCHEDULE K-1
CAPITAL GAINS AND LOSSES
Schedule K-1
Net short-term capital gain (loss)
Net long-term capital gain (loss)
Use Schedule D
Enter short-term on line 5
Enter long-term on line 12
Sample K-1s (may vary)
SAMPLE SCHEDULE K-1
Wash Sales – Out Of Scope
Wash sales – Occurs when stock is sold at a
loss, and then within 30 days, (either
before or after) substantially equivalent
stock is purchased
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Loss is not deductible
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Capital Gain/Loss Problem #3
Jim sold a mutual fund he purchased 8/15/1983.
The records show he reinvested capital gains
totaling $8,640, interest totaling $6,940 and
dividends of $3,298.
All reinvestments qualify for LTCG. His purchase
price was $20,000. He sold this fund for $39,201
on 11/15/2009
What is his capital gain?
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Capital Gain/Loss Problem #3
Answer
2008
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Sale Of Home
Define Main Home
Determine if taxpayer who sold a main
home this year qualifies to exclude all or
part of any gain from income
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Main Home
Determined by facts – not by choice
Where TP resides most of the time
If TP is living in a rental, the rental might be
considered the main home
Other places may qualify (house, boat,
mobile home, apt, condo, etc)
Land sale does not qualify
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Sale Of Business/Rental Property
- OUT OF SCOPE
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Calculate Gain
Selling price includes all monies received plus any
mortgages or other debts taken over by the buyer
Amount Realized is the sale price minus selling expenses
Adjusted Basis is the original cost plus any increase or
decrease to original basis
Gain or loss is the amount realized compared to the
adjusted basis
Loss on sale of home can not be deducted
A lot of useful information can be gleaned from the HUD-1
form given to all buyers and sellers
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1099-S May Not Be Provided If
Can Exclude Total Gain
2008
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Calculate Exclusion
Single homeowner can exclude up to $250,000 of
gain from sale of main home
Married couple can exclude up to $500,000 of
gain, if:
Filed a joint return
Either or both meet the ownership test
Both individuals meet the use test
Neither individual excluded gain in the 2 years before
the current sale
New: Sale of home within 2 years of spousal
death
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Ownership And Use Tests
Ownership Test: Owned by the taxpayer for
a combined period of at least 2 years out of
the last 5 years, ending on the date of sale
AND
Use Test: Lived in home as the taxpayer’s
main home for at least 2 years of that 5
year period
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