1 / 19

Lesson 12

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

jane-mcgee
Download Presentation

Lesson 12

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Lesson 12 Sale of Stock & Other Investment Property

  2. 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

  3. Intake/Interview Process Form 13614 – Intake and Interview Sheet - Income Section

  4. Investment Property Property that produces investment income • Stocks • Bonds • Mutual Funds • Treasury Bills & Notes

  5. 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

  6. 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

  7. Identifying Shares Sold • Specific Identification • Identification Not Possible • Mutual Fund Shares • Cost Basis • Average Basis

  8. Holding Period • Stock held for more than 12 months is considered long-term property • Stock held for 1 year or less has a short-term holding period • Inherited property (long-term property) • Nontaxable stock dividends and stock splits (same holding period as the original stock)

  9. 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

  10. 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

  11. 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

  12. 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;

  13. 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

  14. Total Net Capital Loss • If taxpayer has a net capital loss, claim the lesser of: • The total net loss or • $3,000 ($1,500 – if MFS) • Capital Loss Carryovers • Carryover until used up • Retain character

  15. 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

  16. Quality Review (QR) Form 8158 – Quality Review Checklist - Income Section

  17. 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)

  18. 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)

  19. 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

More Related