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Chapter 11 - 207 Chapter 11 Property Capital Gains and...

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© 2010 CCH. All Rights Reserved. Chapter 11 207 Chapter 11 Property: Capital Gains and Losses, and Depreciation Recapture Highlights of 2010 Tax Changes No signi fi cant tax law changes occurred for 2010. Teaching Suggestions The netting of capital gains and losses is one of the more dif fi cult concepts in Chapter 11. It may help if 1. students take all recognized capital gains and losses and identify them as one of the following: (i) short-term gain/loss [from the sale of capital assets held for one year or less]; (ii) 25% long-term gain [unrecaptured Section 1250 gain]; and (iii) 15% long-term gain/loss [from the sale of capital assets held for more than one year]. Next, students will place each gain/loss in the appropriate column and net gains and losses within each group. The netting process will be easiest for students to follow if they set up the columns such that short-term capital gains and losses are in the far left column, followed by 25% long-term gain, and fi nally 15% long-term gains and losses in the far right column. The netting process between groups begins by offsetting 15% long-term losses against 25% long-term gains. Next, offset any remaining net 15% long-term capital loss against any net short-term capital gain, or offset any net short-term capital loss against 25% long-term gain, followed by 15% long-term gain. When calculating tax on capital gains, the amount of net capital gain remaining in the net 15% long-term capital gain column is taxed at 15% if the taxpayer is in a tax bracket higher than 15%. For taxpayers in the 10% or 15% tax brackets, tax on the net long-term capital gain is taxed at 0%. In completing Form 4797, students could begin by computing depreciation recapture in Part III. Students can 2. then transfer the gain recaptured as ordinary income to Part II and the Section 1231 gain to Part I.
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208 Essentials of Federal Income Taxation Chapter 11 © 2010 CCH. All Rights Reserved. Solutions to Questions and Problems ¶1101.01. 1. Item Answer a. House occupied as residence (personal belonging) Yes b. Delivery truck used in business No c. Corporate stocks owned by doctor (investment property) Yes d. Valuable jewelry held as inventory No e. Land held as an investment Yes f. Automobile used for personal purposes (personal belonging) Yes g. Business suits worn only to work (personal belonging) Yes h. House used strictly as a summer residence (personal belonging) Yes i. Musical copyright owned by the composer * * Not a capital asset unless the composer elects to treat it as one. a. Short-term capital gain is a gain derived from the sale or exchange of capital assets that have been held 2. for one year or less. The holding period for property acquired on January 10 begins on January 11. Therefore, if any of the assets in question are sold before January 11, 2010, the gain or loss is short-term. If any of the assets are sold after January 10, 2010, the gain or loss is long-term. ¶1101.02.
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