eks advanced training pilot1 capital gains/losses pub 4491- lesson 10 pub 4012- tab 2 form 1040-...
TRANSCRIPT
EKS Advanced Training Pilot 1
CAPITAL GAINS/LOSSES
• Pub 4491 - Lesson 10
• Pub 4012 - Tab 2
• Form 1040 - Line 13
• Pub 17 - Chapters 13-16
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SALE OF ASSETS
• Key elements of sale:– When did you buy it?– When did you sell it?– What is the cost basis?– What is the sales price?
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COST BASIS OF PROPERTY
• Cost basis
• Adjusted basis
• Property received as a gift
• Stocks and bonds
• Mutual fund shares – average cost method in scope if computed by broker/mutual fund
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BASIS OF INHERITED PROPERTY
• From decedent who died prior to/after 2010, basis is generally– Fair Market Value (FMV) at time of death– Other alternate valuations out-of-scope
• From decedent who died in 2010 – only in-scope if basis provided by representative or trustee
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SALE OF PROPERTY
• Sales and trades• How to figure gain or loss• Holding period
– Long term or short term
– Property received as a gift
– Inherited property (see following slide)
– Stock dividends
• Wash sales: out-of-scope
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SALE OF INHERITED PROPERTY
• Decedent died prior to/after 2010– Considered long-term no matter how long
property actually held– In TaxWise, entered “INHERIT” for date
acquired
• Decedent died in 2010– Out-of-scope unless representative or
trustee provides cost basis, gain or loss, and holding period
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1099-B REQUIREMENTS
• Brokers (payer) must report (1099-B)– cost or other basis – whether a gain or loss is short-term or long-
term
Only if the securities sold were covered securities
Not required for noncovered securities
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NONCOVERED SECURITIES
• A security other than stock
• Stock purchased before 2011
• Shares acquired before 2012 in a regulated investment company (e.g. mutual fund) for which the average basis method is available
• Stock acquired before 2012 in connection with a dividend reinvestment plan
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1099-B REPORTING
• We don’t decide what is covered or noncovered – the broker does it
• Client may receive form 1099-B or substitute, broker’s statement
• Follow the statement– Unless the client has information that the
statement is incorrect or incomplete
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REPORTING GAINS/LOSSES
• Sale of property bought at various times
• Sale expenses
• Short-term/long-term gains and losses
• Capital gain distributions
• Capital loss carryover Be sure to print out Sch D, Wkt 2, for client
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SCH D & FORMS 8949
• Schedule D has reporting lines consistent with Form 8949
• TaxWise will create appropriate 8949s based on entry in the Capital Gain or Loss Transactions Worksheet (Cap Gain Wkt)
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SCH D & FORM 8949, cont’d
• Each 8949 generated has two pages, page 1 for short-term and page 2 for long-term
• Each 8949 reports one of the following types of sales by checking the appropriate code at the top of the form:– Box A – Basis reported to the IRS
– Box B – Basis not reported to the IRS
– Box C – Neither A nor B (no 1099-B)
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SCH D & FORM 8949, cont’d
• For each asset sold, the 1099-B will have an A/B/C designator
• A/B/C designators will be entered on the Cap Gain Wkt in the 1099 column
• Column (f) lists code for adjustments to gain or loss, exclusion of gain on main home, etc. - codes listed in 4012
• Column (g) lists the amount of the adjustment referenced in column (f)
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FORM 8949
Form automatically populated by TaxWise from Cap Gain Wkt and transferred to Schedule D
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CAPITAL GAIN WORKSHEET
• TaxWise Capital Gain Wkt will:– Determine whether long/short term– Calculate taxable gain/loss– Carry data to Form 8949 and Sch D
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CAPITAL GAIN WORKSHEET
• TaxWise Sch D will– Calculate tax liability using capital gain
worksheet, if applicable– Calculate capital loss carryover
• Check last-year’s return for carryover (in TW, carryforward data will fill in amount) and report on Sch D May need to input state loss carryover
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MULTIPLE TRANSACTIONS (Form 8453)
• Instead of listing multiple transactions, enter summary(ies) on Cap Gain Wkt– By broker name– Enter summary or totals for each code: A-
ST, B-ST, C-ST, A-LT, B-LT, C-LT– Enter appropriate ST or LT date for date
acquired and date sold
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MULTIPLE TRANSACTIONS (Form 8453)
• Select Sch D– Check box at top that will be using Form
8453
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MULTIPLE TRANSACTIONS (Form 8453)
• Keep 2 copies of 8453 and 8949
• Keep 2 copies of the broker statement
• Follow site instructions for processing of Form 8453 (w/ 8949 & broker statements), usually– 1st set to IRS Texas – 2nd set to SPEC
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TAX LIABILITY IF NET GAIN
• If net long-term and net short-term are both gains– Net long-term gains are taxed at capital gain
rates– Net short-term gain are taxed at ordinary
income rates
• If net long-term gain exceeds net short-term loss, net amount is taxed at capital gain rates
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TAX LIABILITY IF NET GAIN
• Qualified dividends are taxed as long-term capital gains– But are not offset by capital losses
• TaxWise does the calculation
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SCHEDULE K-1CAPITAL GAINS OR LOSSES
• In TaxWise, enter directly on Sch D (do NOT fill out K-1)– Short term – Line 5– Long term – Line 12– Direct entry provides proper tax treatment of
short or long term gains or losses
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CAPITAL GAINS QUIZ #1
• The taxpayer paid $1,000 for 100 shares of XYZ stock
• What is his cost basis per share in XYZ?
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CAPITAL GAINS #1 ANSWER
• The taxpayer paid $1,000 for 100 shares of XYZ stock
• What is his cost basis per share in XYZ?
$10 per share
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CAPITAL GAINS QUIZ #2
• The same 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?
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CAPITAL GAINS #2 ANSWER
• The same 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?
$5 per share
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CAPITAL GAINS QUIZ #3
• The same taxpayer sells all 200 shares of XYZ stock receiving $7 per share minus a total commission of $15
• What are the sales price (not reduced for commissions) and the basis that should be shown on the 1099-B?
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CAPITAL GAINS #3 ANSWER
• The same taxpayer sells all 200 shares of XYZ stock receiving $7 per share minus a total commission of $15
• What are the sales price (not reduced for commissions) and the basis that should be shown on the 1099-B?
$1,400 selling price
$1,015 cost basis (gain is $385)
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CAPITAL GAINS QUIZ #4
• The taxpayer sells all 200 shares of XYZ stock receiving $7 per share less a total commission of $15
• If the 1099-B reports net proceeds, what will be the sales price and the basis?
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CAPITAL GAINS #4 ANSWER
• The taxpayer sells all 200 shares of XYZ stock receiving $7 per share less a total commission of $15.
• If the 1099-B reports net proceeds, what will be the sales price and the basis?
$1,385 selling price
$1,000 basis (gain is still $385)
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SALE OF HOME
• Main home– Ownership and use tests– May be nontraditional home
• Figuring gain or loss– Amount realized (on sale)– Determining (cost) basis– Maximum exclusion
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SALE OF HOME QUIZ
• John purchased a condo in 2003 and lived in it until 2009
• Jane was divorced in 2005 and has lived in her home since then
• John and Jane married in 2009 and began living together in her home
• John sold his condo in 2011 for a $300,000 gain
• Does John qualify to exclude the gain if MFJ?
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SALE OF HOME QUIZ ANSWER
Does John qualify to exclude the gain if MFJ?
Ownership test - yes, owned since 2003 Use test – yes for John; but, was not
Jane’s main home for 2 years during 5 years preceding sale
So can exclude up to $250,000 only