Exam 3 Note Sheet

Exam 3 Note Sheet - - Capital assets are assets that...

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- Capital assets are assets that taxpayers buy and hold with appreciation potential. Capital losses can only be deducted against capital gains. (Exception taxpayers can deduct up to 3,000 of net capital loss per year) Capital gains are taxed at 15%, a maximum of 3,000 can be deducted as a capital loss and the excess will carry over // A wash sale occurs when an investor sells or trades stock or securities at a loss and within 30 days either before or after the day of the sale buys substantially identical stocks or securities. The purpose of the wash sale rule is to prevent taxpayers from accelerating losses on securities that have declined in value without actually altering their investment in securities. The 61 day period ensures that taxpayers cannot deduct losses from stock sales without exposing themselves to the risk that the stock they sold will subsequently increase in value. // A passive activity is defined as any activity which involves the conduct of a trade or business, and in which the taxpayer does not materially participate. Examples of possible losses that can be characterized as passive include rental activities, real estate, and limited partners in partnerships. Participants in all other trade or business activities are passive unless their involvement in an activity is regular, continuous, and substantial. / / Accrued market discount on bonds is reported as interest income when the bonds are sold or mature. In the year the bond matures, he will again report $5,000 of interest income related to the semiannual interest payments received and an additional $5,000 of interest income related to the market discount on the bonds. // Stocks adjusted basis is purchase price + any broker fee or commission. Gain realized = ((sell price x #of shares) + fees) – (adjusted basis) // Worthless securities is any security which is a capital asset becomes worthless during the taxable year, the loss resulting there from shall be treated as a los from the sale or exchange on the last day of the taxable year of a capital asset. Generally a long term capital loss
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Exam 3 Note Sheet - - Capital assets are assets that...

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