Week8.Lecture.Chs15-16

Week8.Lecture.Chs15-16 - Chapters 15 and 16 Property...

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Unformatted text preview: Chapters 15 and 16 Property Transactions: Capital Gains and Losses; Nontaxable Exchanges C15 - C15 - 2 Taxation of Capital Gains and Losses Capital gains and losses must be separated from other types of gains and losses for two reasons: Long-term capital gains may be taxed at a lower rate than ordinary gains A net capital loss is only deductible up to $3,000 per year C15 - C15 - 3 Proper Classification of Gains and Losses Depends on three characteristics: The tax status of the property Capital asset, 1231 asset, or ordinary asset The manner of the propertys disposition By sale, exchange, casualty, theft, or condemnation The holding period of the property Short term and long term C15 - C15 - 4 Capital Assets (slide 1 of 4) Capital assets = everything except: Inventory, stock, goods held for sale in business Notes and accounts receivables Realty and depreciable property used in trade or business (1231 assets) Thus, capital assets are: Assets held for investment (e.g., stocks, bonds, land) Personal use assets (e.g., residence, car) Miscellaneous assets selected by Congress C15 - C15 - 5 Capital Assets (slide 2 of 4) Other Provisions Small Business Stock (Section 1244): Allows ordinary loss treatment up to $50K per year for STP and $100K per year for MFL Small Business Stock (Section 1202): If TP holds stock for more than 5 years, then: 50% of gain is excluded form income (maxed at $10M or 10x stock basis) Remaining 50% is taxed at 28% rate If 10M or 10x basis limits are reached, the remaining gain is taxed at 5% or 15% rates Small business stock = stock acquired from a domestic corp. with assets that do not exceed $50 million before or after the issuance of the stock C15 - C15 - 6 Capital Assets (slide 3 of 4) Dealers in securities In general, securities are the inventory of securities dealers, thus ordinary assets However, a dealer can identify securities as an investment and receive capital gain treatment Clear identification must be made on the day of acquisition C15 - C15 - 7 Capital Assets (slide 4 of 4) Real Estate Developer Taxpayer may receive capital gain treatment on the subdivision of real estate if the following requirements are met: Taxpayer is not a corporation Taxpayer is not a real estate dealer No substantial improvements made to the lots Taxpayer held the lots for at least 5 years Capital gain treatment occurs until the year in which the 6 th lot is sold Then up to 5% of the revenue from lot sales is potential ordinary income That potential ordinary income is offset by any selling expenses from the lot sales C15 - C15 - 8 Holding Period (slide 1 of 2) Short-term Asset held for 1 year or less Long-term Asset held for more than 1 year Holding period starts on the day after the property is acquired and includes the day of disposition If buy on March 3, 2006 and sell on March 3, 2007, gain or loss on sale is short-term C15 -...
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Week8.Lecture.Chs15-16 - Chapters 15 and 16 Property...

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