eks advanced training pilot1 capital gains/losses pub 4491- lesson 10 pub 4012- tab 2 form 1040-...

EKS Advanced Training Pilot 1

CAPITAL GAINS/LOSSES

• Pub 4491 - Lesson 10

• Pub 4012 - Tab 2

• Form 1040 - Line 13

• Pub 17 - Chapters 13-16


SALE OF ASSETS

• Key elements of sale:– When did you buy it?– When did you sell it?– What is the cost basis?– What is the sales price?


COST BASIS OF PROPERTY

• Cost basis

• Adjusted basis

• Property received as a gift

• Stocks and bonds

• Mutual fund shares – average cost method in scope if computed by broker/mutual fund


BASIS OF INHERITED PROPERTY

• From decedent who died prior to/after 2010, basis is generally– Fair Market Value (FMV) at time of death– Other alternate valuations out-of-scope

• From decedent who died in 2010 – only in-scope if basis provided by representative or trustee


SALE OF PROPERTY

• Sales and trades• How to figure gain or loss• Holding period

– Long term or short term

– Property received as a gift

– Inherited property (see following slide)

– Stock dividends

• Wash sales: out-of-scope


SALE OF INHERITED PROPERTY

• Decedent died prior to/after 2010– Considered long-term no matter how long

property actually held– In TaxWise, entered “INHERIT” for date

acquired

• Decedent died in 2010– Out-of-scope unless representative or

trustee provides cost basis, gain or loss, and holding period


1099-B REQUIREMENTS

• Brokers (payer) must report (1099-B)– cost or other basis – whether a gain or loss is short-term or long-

term

Only if the securities sold were covered securities

Not required for noncovered securities


NONCOVERED SECURITIES

• A security other than stock

• Stock purchased before 2011

• Shares acquired before 2012 in a regulated investment company (e.g. mutual fund) for which the average basis method is available

• Stock acquired before 2012 in connection with a dividend reinvestment plan


1099-B REPORTING

• We don’t decide what is covered or noncovered – the broker does it

• Client may receive form 1099-B or substitute, broker’s statement

• Follow the statement– Unless the client has information that the

statement is incorrect or incomplete


REPORTING GAINS/LOSSES

• Sale of property bought at various times

• Sale expenses

• Short-term/long-term gains and losses

• Capital gain distributions

• Capital loss carryover Be sure to print out Sch D, Wkt 2, for client


SCH D & FORMS 8949

• Schedule D has reporting lines consistent with Form 8949

• TaxWise will create appropriate 8949s based on entry in the Capital Gain or Loss Transactions Worksheet (Cap Gain Wkt)


SCH D & FORM 8949, cont’d

• Each 8949 generated has two pages, page 1 for short-term and page 2 for long-term

• Each 8949 reports one of the following types of sales by checking the appropriate code at the top of the form:– Box A – Basis reported to the IRS

– Box B – Basis not reported to the IRS

– Box C – Neither A nor B (no 1099-B)


SCH D & FORM 8949, cont’d

• For each asset sold, the 1099-B will have an A/B/C designator

• A/B/C designators will be entered on the Cap Gain Wkt in the 1099 column

• Column (f) lists code for adjustments to gain or loss, exclusion of gain on main home, etc. - codes listed in 4012

• Column (g) lists the amount of the adjustment referenced in column (f)


FORM 8949

Form automatically populated by TaxWise from Cap Gain Wkt and transferred to Schedule D


Capital Gain & Loss Wksht


CAPITAL GAIN WORKSHEET

• TaxWise Capital Gain Wkt will:– Determine whether long/short term– Calculate taxable gain/loss– Carry data to Form 8949 and Sch D


CAPITAL GAIN WORKSHEET

• TaxWise Sch D will– Calculate tax liability using capital gain

worksheet, if applicable– Calculate capital loss carryover

• Check last-year’s return for carryover (in TW, carryforward data will fill in amount) and report on Sch D May need to input state loss carryover


MULTIPLE TRANSACTIONS (Form 8453)

• Instead of listing multiple transactions, enter summary(ies) on Cap Gain Wkt– By broker name– Enter summary or totals for each code: A-

ST, B-ST, C-ST, A-LT, B-LT, C-LT– Enter appropriate ST or LT date for date

acquired and date sold



• Select Sch D– Check box at top that will be using Form

8453



• Keep 2 copies of 8453 and 8949

• Keep 2 copies of the broker statement

• Follow site instructions for processing of Form 8453 (w/ 8949 & broker statements), usually– 1st set to IRS Texas – 2nd set to SPEC


TAX LIABILITY IF NET GAIN

• If net long-term and net short-term are both gains– Net long-term gains are taxed at capital gain

rates– Net short-term gain are taxed at ordinary

income rates

• If net long-term gain exceeds net short-term loss, net amount is taxed at capital gain rates


TAX LIABILITY IF NET GAIN

• Qualified dividends are taxed as long-term capital gains– But are not offset by capital losses

• TaxWise does the calculation


SCHEDULE K-1CAPITAL GAINS OR LOSSES

• In TaxWise, enter directly on Sch D (do NOT fill out K-1)– Short term – Line 5– Long term – Line 12– Direct entry provides proper tax treatment of

short or long term gains or losses


SCHEDULE K-1CAPITAL GAINS OR LOSSES


CAPITAL GAINS QUIZ #1

• The taxpayer paid $1,000 for 100 shares of XYZ stock

• What is his cost basis per share in XYZ?


CAPITAL GAINS #1 ANSWER

• The taxpayer paid $1,000 for 100 shares of XYZ stock

• What is his cost basis per share in XYZ?

$10 per share



• The same taxpayer, who paid $1,000 for 100 shares of XYZ stock, received a 2 for 1 stock split

• What is his adjusted basis per share in XYZ?



• The same taxpayer who paid $1,000 for 100 shares of XYZ stock received a 2 for 1 stock split

• What is his adjusted basis per share in XYZ?

$5 per share



• The same taxpayer sells all 200 shares of XYZ stock receiving $7 per share minus a total commission of $15

• What are the sales price (not reduced for commissions) and the basis that should be shown on the 1099-B?



• The same taxpayer sells all 200 shares of XYZ stock receiving $7 per share minus a total commission of $15

• What are the sales price (not reduced for commissions) and the basis that should be shown on the 1099-B?

$1,400 selling price

$1,015 cost basis (gain is $385)



• The taxpayer sells all 200 shares of XYZ stock receiving $7 per share less a total commission of $15

• If the 1099-B reports net proceeds, what will be the sales price and the basis?



• The taxpayer sells all 200 shares of XYZ stock receiving $7 per share less a total commission of $15.

• If the 1099-B reports net proceeds, what will be the sales price and the basis?

$1,385 selling price

$1,000 basis (gain is still $385)


SALE OF HOME

• Main home– Ownership and use tests– May be nontraditional home

• Figuring gain or loss– Amount realized (on sale)– Determining (cost) basis– Maximum exclusion


SALE OF HOME QUIZ

• John purchased a condo in 2003 and lived in it until 2009

• Jane was divorced in 2005 and has lived in her home since then

• John and Jane married in 2009 and began living together in her home

• John sold his condo in 2011 for a $300,000 gain

• Does John qualify to exclude the gain if MFJ?


SALE OF HOME QUIZ ANSWER

Does John qualify to exclude the gain if MFJ?

Ownership test - yes, owned since 2003 Use test – yes for John; but, was not

Jane’s main home for 2 years during 5 years preceding sale

So can exclude up to $250,000 only


LET’S PRACTICE IN TAXWISE 4491-W

• Under direction of the instructor:– Open the return for Kent in TaxWise– From Pub 4491-W, enter stock sales for

Kent, Advanced Comprehensive Problem C– Verify tax liability

eks advanced training pilot1 capital gains/losses pub 4491- lesson 10 pub 4012- tab 2 form 1040-...

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