Chapter+8+PowerPoint+Slides - Chapter 8 Property Transactions Capital Gains and Losses 1231 and Recapture Provisions 2013 CCH All Rights Reserved 4025 W

Chapter+8+PowerPoint+Slides - Chapter 8 Property...

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Chapter 8Property Transactions:Property Transactions:Capital Gains and Losses, § 1231,and Recapture Provisions©2013 CCH. All Rights Reserved.4025 W. Peterson Ave.Chicago, IL 60646-6085800 248 3248CCHGroup.com
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Capital Transactions – General RemarksThe code makes a distinction between personal-use capital assets and business-use capital assets, giving preferential tax treatment to transactions involving business-use capital assets.Personal-use capital assets are commonly referred to as simply “Capital Assets.”Business-use capital assets are commonly referred to as “1231 Property.”General Rules:Capital Asset Transactions (personal-use):Capital Asset Transactions (personal-use):Gains: either ordinary income (short-term) or capital gains (subject to lower tax rates). Losses: capital losses (only first $3,000 can be used each year with the carried forward indefinitely). 1231 Property Transactions (business-use):Gains: capital gains (subject to lower tax rates).Losses: ordinary losses (can be deducted against ordinary income without limits).
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Capital Assets (Personal)Capital Assets (Personal)
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Capital Assets—DefinedCode Sec. 1221 defines capital assets by stating what they are not. “Capital assets” generally refer to any property other than:1.Ordinary income property (inventory, receivables, creative works created by the taxpayer) 2.Depreciable business property (buildings and machinery) (this is a 1231 asset)a 1231 asset)3.Non-depreciable business property (land) (this is a 1231 asset)Thus, capital assets would include investment property such as stocks and bonds, and personal use assets such as cars, principal residences, household furnishings and jewelry. (Note: Paintings, manuscripts, and other creative works are capital assets if created by someone other than the taxpayer).Chapter 12, Exhibit 1
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Determination of Capital Gains and Lossessquare6Long-term capital gains are taxed up to 20% for taxpayers in the 39.6% bracket (otherwise they are taxed at 0% for individuals in the 15% and 10% tax brackets and 15% for everyone else), except for:rhombus6Collectibles gains, which are taxed up to 28%rhombus6Section 1202 gains, which are taxed up to 28% (sale of small business stock held more than 5 years).rhombus6Section 1250 gains (depreciable real property), which are taxed up to 25%.Chapter 12, Exhibit 2a
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Step One square6Group gains or losses into 4 baskets and determine the net amount in each basket.1) Short-term gains/losses.2) 28% long-term gains/losses.Determination of Capital Gains and Losses3) 25% long-term gains (IRC 1250, you will not be tested on this)4) 0/15/20% long-term gains/losses (including 1231 LT capital gains)Chapter 12, Exhibit 2b
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