R2- M2- Gains and Losses Flashcards
1 Overview of Gains and Losses 2 Capital Gain and Loss Rules 3 Nondeductible Losses (16 cards)
What is a non recourse secured loan?
relevant for Property foreclosure where COD (Cancellation of Debt) is not considered because debtor is no longer liable on any excess debt that was not paid by the collateral property hence no income will be rpeorted on the debtor’s Tax return
Non-recourse debt is a type of loan secured by collateral, commonly property. If the borrower defaults, the issuer can seize the collateral but cannot seek out the borrower for any further compensation, even if the collateral does not cover the full value of the defaulted amount.
PERSONAL USE ASSET
sale of car used personally
A personal-use asset is a capital asset. A gain on the sale of a personal-use asset is a taxable capital gain. A loss on the sale of a personal-use asset is a nondeductible personal loss.
OPTION HELD BY AN INVESTOR
. An option held by an investor is a capital asset. A capital asset which is sold or exchanged within one year of acquisition will generate either a short-term capital gain (if the capital asset is sold at a price greater than acquisition cost) or a short-term capital loss (if the capital asset is sold at a price less than the acquisition cost). The cost (or other basis) of worthless stock or securities is treated as a capital loss as if they were sold on the last day of the taxable year in which they became totally worthless. The option’s exercise price is irrelevant with respect to determining loss on account of the lapse of the options.
Short sale of Stock
A short sale of stock results in a capital asset sale. The holding period is based on the date the short sale is executed, not the closing date of the short sale when the stock is delivered.
Noncapital and Capital Assets
Non capital assets are used in trade or business - AR , inventory, Real and Personal property
Capital assets are anything thats not Non Capital- Investments, personal use car home
NET CAPITAL GAIN RULES
Over 12 months
Long term
Subject to preferential rate
0%, 15% and 20%
12 MONTHS and LESS
Short term
Taxes as ordinary income
NET CAPITAL LOSS RULES
Maximum deduction is $ 3,000 per year
If MFS it will be $ 1,500 per spouse
Excess Loss over 3k can be carried forward indefinitely
How are SALE of Collectibles being taxed?
Collectibles are works of art , stamp or coin collections, antiques
are taxed at a maximum rate of 28%
How are SALE of QSBS being taxed?
QSBS stands for Qualified Small Business Stock
They are original issue C Corporation held for MORE than 5 Years
C Corporation tax basis of its asset should NOT BE MORE THAN $50 Milion
Allowed to exclude the gain, HIGHER between:
10MM
or
10 times the TP’s tax basis
Excess is Taxed a maximum rate of 28%
Group of Capital Loss or Capital Gain
Short Term Capital Gain- Taxed at Ordinary Rate
Short Term Capital LOSS
Can be Net STCG - taxed ordinary
Can be Net STCLoss- claim the first 3k as a deduction
Long Term Capital Gain- Taxed at 28% (QSBS and Collectibles)
Long Term Capital Loss A
Net LTCG A- taxed at 28%
Net LTCLoss A
Long Term Capital Gain- Taxed at 0%,15% and 20%
Long Term Capital Loss B
Net LTCG B- taxed at 28%
Net LTCLoss B
Net STCL you can apply to the ff order:
- Net LTCG -28%
- Net LTCG - 0,15,20
Net LTCL B from 0,15,20 apply to the ff order:
1. Net LTCG - 28%
2. Net STCG - taxed at ordinary rates
Net LTCL B from 28% apply to the ff order:
1. Net LTCG - 0,15,20
2. Net STCG - taxed at ordinary ratess
Capital Gain and Loss for C Corporations
- Net Capital Gains
are added as Ordinary Income and Taxed at the regular tax rate
No Short or Long Term distinction
C corp do not get the benefit if Lower Capital Gains Rates
- Net Capital Loss
Carried back 3 years and forward 5 years
Net capital losses can offset Net capita gains in other years within the carryback and carryforward window
Losses (Non Deductible)
W- ash Sale
R- elated Party
and
P-ersonal losses
Wash Sale Rules
Repurchased or sold the same stock within
30 DAYS before or after the sale date
This rule will NOT APPLY for dealers on the ordinary course of business
The disallowance is on the LOSS only
BASIS of Repurchased security will be the new Purchase Price + Disallowed wash sale loss-NOTE THIS! Loss is added to the newly bought shares
Date of Acquisition of REPURCHASED security = Date of Acquisition of the ORIGINAL security
Gain- if the security is sold at a GAIN and is repurchased within 30 days , the TP CANNOT use the SUBSTITUTED basis.
He must pay CAPITAL gains tax and use the new Purchase price as the basis
Short sale worthless stock
Sale should be considered last day of the year in which the stock become worthless and count backwards if within 12 months
Its short term
Personal Non Business Bad Debt
treated as Short term capital loss in the year the debt becomes totally worthless
this is always SHORT TERM!!! CAPITAL LOSS
Short term capital gains are taxed on ordinary tax rates
Short term capital loss are adjustments to Gross Income up to $ 3k per year for Inidviduals
