Capital assets:
Real and personal property
- NOT used in business
- Investment assets that are not inventory (land/securities)
Capital gains/loss treatment for individuals:
Net capital loss deduction on $3,000 max
-excess carried forward
Capital gains are FULLY taxable
Calculating net loss/gain:
- Net short term G/L
- Net ST losses against highest tax rate first
- Net losses against remaining gains
- Only 3,000 of remaining loss is deductible against ORDINARY income
NON capital assets:
- Property used in business(equipment, inventory, accounts receivable)
- Copyrights held by OG artist (created NOT bought)
- Treasury stock
Installment sale calculation:
- Gross profit= Sales price- COGS
- GP %= GP/Sales price
- GP recognized in yr of sale=Cash collections received in yr*GP %
- Adj basis is increased by amt of selling costs
Worthless stock:
- Treated as a capital loss
- Basis=purchase price/cost (option exercise price is irrelevant)
- ST or LT based on last day of taxable yr in which they became worthless
Section 1231 assets:
LT, business, depreciable or real property
- First: Net G & L
- If G>L, net amt= LT capital gain
- If L>G net amt=ordinary loss
Section 1231 assets:
LT, business, depreciable/tangible or real property
- First: Net G & L
- If G>L, net amt= LT capital gain
- If L>G net amt=ordinary loss
Tax treatment for section 1245 assets:
-Lesser of: Amt of accumulated depreciation OR Gain =
(Recapture)–>ordinary income
-Excess gain is section 1231 gain
Installment sales rules:
- Recognize revenue when cash is received (even if accrual basis)
- Gain from sale of depreciable property (NOT land) to a RELATED PARTY is ineligible for installment reporting
When depreciation recapture is lower than total accumulated depreciation:
- No 1231 Gain
- Entire gain is from recapture
Gain for building:
Individuals:
-No depreciation recapture, entire gain is 1231
Corporations:
-Section 1231 gain= Total gain from selling property in excess of cost
Types of section 1231 assets:
1245 assets: Machinery and equipment
1250 assets: Real property
Pure 1231: Land
179 expense:
- $510,000 max exp is lowered $ for $ over 2,030,000 amount
- New or used machinery or equipment
- N/A to buildings or land
- May not create a loss
Cost depletion:
Basis of property(cost) / # of remaining recoverable units
- multiplied by # of units sold
- computation of rate is redone every year
Percentage depletion:
Multiply % by gross income from property for year
- deduction limited to 50% of taxable income in yr (not carried forward)
- Greater deduction amt per year
- only used for tax purposes
