CHAPTER 11 student f 2010

CHAPTER 11 student f 2010 - CHAPTER 11 INVESTMENTS...

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CHAPTER 11 INVESTMENTS
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Income/Loss Classification Passive Activity Rules require income and losses to be separated into three categories: Active Portfolio Passive Generally, the deduction of passive losses against active or portfolio income is disallowed
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Portfolio Income – Interest Usually taxable when received Interest from bonds, CDs, savings accounts Ordinary income taxed at ordinary rate unless municipal bond interest Interest from U.S. Treasury bonds not taxable by states
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Portfolio Income - Dividends Dividends on stock Typically taxed at preferential capital gains rate Dividends must be paid by domestic or certain foreign corporations that are held for a certain length of time Subject to preferential tax rate 15% generally 0% if would have been taxed at 10% or 15% if it had been ordinary income Nonqualified dividends are taxed as ordinary income
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Portfolio Income – Capital Assets What are capital assets? §1221 defines capital assets as…. Everything except Inventory (stock in trade) Notes and accounts receivables acquired from the sale of inventory or performance of services Realty and depreciable property used in trade or business (§1231 assets) Certain copyrights; literary, musical, or artistic compositions; or letters, memoranda, or similar property when created by taxpayer (Supplies of a type regularly used or consumed in the ordinary course of a business Certain publications of U.S. government
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Capital Assets Capital assets defined in the negative - NOT: Asset used in trade or business Accounts or notes receivable acquired in business from sale of services or property Inventory Sale of capital assets generates capital gains and losses Specific identification vs. FIFO Long-term if capital asset held more than a year Short-term if capital asset held for year or less Holding period starts on the day after the property is acquired and includes the day of disposition
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CHAPTER 11 student f 2010 - CHAPTER 11 INVESTMENTS...

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