This changes our Net STCL to a STCG of $1K which changes our Net Capital Loss from $10K to $7K ($8 -$1K) o Per 1212(b)(1)(B) this $7K is then treated as a LTCL in the succeeding taxable years o I’m not sure what happens after this, Get from Class Class Notes: - First Identify that there is NO way you are analyzing a capital gain o Step back and see if you have more losses than gains or more gains than losses. - Could you ever have a Net Capital Gain if you didn’t have any long- term capital gains. o N0, b/c under 1222(11), it’s the excess of net long-term capital gain over the net of short term capital loss - Next analyze under §1211 o YEAR 1 o We have $7K of losses and $4,600 in gains o §1211 says we can deduct losses to the extent we have gains Therefore we can deduct $4,600 (this leaves us w/ $2,400) o Then per §1211(b) we can deduct up to $3K in excess of the gains and because we only have $2,400 we can deduct it all - Year 2: o We have 14,000 in losses and $4K in gains o We must first net the losses against our gains which is 14K versus $4K leaving us w/ $10K o Next in 1211(b) we can deduct the lesser of $10K (the remaining) or $3), so we can deduct $3K leaving us w/ $7K
1 o This means when all is said and done, we will have $4K in gains and $7K losses, leaving: $7K is our NCL The only reason we want to know our NCL is to see what can be carried over to next year. o We can then deduct the losses to the extent we have gains. This means of the $7K we can deduct $4K (what we have in gains). This means we will have $3K left that cannot be deducted. o However per _____ we can deduct the $3K carryover in subsequent years. - If we have a NCL defined by 1222, we can deduct those losses as a carryover loss under 1212(b) - For the purposes of this class we don’t need to know whether a carryover is considered long term or short term loss
1 The Meaning of “Capital Asset” Code § 1221 Capital Asset Defined - (a) Capital asset means property held by the taxpayer (whether or not connected w/ his trade or business), but does not include – o (1) Stock in the trade of the taxpayer, or property included in the inventory of the taxpayer if on hand at the end of the year, or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business Was this for investment or business income: If investment it’s more likely to be a capital asset on this problem. Most of the litigation in this part • If it’s a gain taxpayers will say it was just an investment and it is a capital asset • If it’s a loss the taxpayer will say it was part of their business and its not a capital asset o (2) Property, used in his trade or business, of a character which is subject to the allowance for depreciation provided in section 167, or real property used in his trade or business o (3) A copyright, a literary, musical, or artistic composition, a letter or memorandum, or similar property, held by – (A) a taxpayer whose personal efforts created such property, (B) in the case of letter, memo, or similar property, a tper for whom such property was prepared or produced, or (C) ….. o
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