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Level 52

Capital Gains & Losses


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capital assets
major expenditures such as property, plant, or equipment
What are NOT Capital assets
Inventory, depreciable personal property and real estate used in a trade or business (1231, 1245 and 1250), Accounts and notes receivable arising from sales/services in taxpayer's business, artistic stuff helf by original artist, treasury stock
Gain/loss on capital asset
Amount realized (cash received + COD + FMV of property received + FMV of services received - selling expenses) - AB
Gift Property Basis
Use donor's basis UNLESS loss gift then determine basis upon sale (If sale $ > FMV, basis = Rollover basis; if sale $ < FMV @ gift date -> basis = FMV @ gift …
When are gains on capital assets not taxed?
When a taxpayer can 'Hide It'... gain to the extent of boot (cash or COD) is always taxable... Homeowners Exclusion, Involuntary conversions, Divorce property settlement, Exchange of like-kind business investment, Installment Sales, and Treasury and capital stock transations
Homeowner's Exclusion
Excludes $500,000 MJF from gain, must have owned and used the property as a principal residencefo 2+ yrs during 5 year period before sale/exchange, either spouse must meet ownership requiremebnt and both spouses must meet use requirement
Gains on involuntary conversion...
no gain recognized on insurance proceeds... If amt received > cost of replacement basis is its cost - gain not realized
Like Kind Exchanges - gain
Gain is lower of realized gain or boot received
Like Kind exchanges - basis rules
usually same as the basis of the property given up, - any boot received + any gain recognized
Installment Sale
Earned Revenie = Cash collections * Gross Profit % ( = (Sale $ -COGS)/Sale $)
Losses that arent deductable for capital gains?
Wash sale loss (secutiry is sold @ a loss and repurchases 30 days before/after sale), Related party transactions, Personal losses
Rules regarding Related Party transactions?
Same as the gift tax rules, except holding period starts with new owner's period of ownership rather than using relatives basis