CAPITAL GAINS/LOSSES
• Pub 4491
- Lesson 10
• Pub 4012
- Tab 2
• Form 1040 - Line 13
• Pub 17 - Chapters 13-16
EKS Advanced Training Pilot
1
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?
EKS Advanced Training Pilot
2
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
EKS Advanced Training Pilot
3
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
EKS Advanced Training Pilot
4
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
EKS Advanced Training Pilot
5
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
EKS Advanced Training Pilot
6
1099-B REQUIREMENTS
• Brokers (payer) must report (1099-B)
– cost or other basis
– whether a gain or loss is short-term or longterm
 Only if the securities sold were covered
securities
 Not required for noncovered securities
EKS Advanced Training Pilot
7
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
EKS Advanced Training Pilot
8
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
EKS Advanced Training Pilot
9
EKS Advanced Training Pilot
10
EKS Advanced Training Pilot
11
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
EKS Advanced Training Pilot
12
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)
EKS Advanced Training Pilot
13
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)
EKS Advanced Training Pilot
14
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)
EKS Advanced Training Pilot
15
FORM 8949
Form automatically populated by TaxWise from
Cap Gain Wkt and transferred to Schedule D
EKS Advanced Training Pilot
16
Capital Gain & Loss Wksht
EKS Advanced Training Pilot
17
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
EKS Advanced Training Pilot
18
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
EKS Advanced Training Pilot
19
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
EKS Advanced Training Pilot
20
MULTIPLE TRANSACTIONS
(Form 8453)
• Select Sch D
– Check box at top that will be using Form
8453
EKS Advanced Training Pilot
21
MULTIPLE TRANSACTIONS
(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
EKS Advanced Training Pilot
22
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 shortterm loss, net amount is taxed at capital
gain rates
EKS Advanced Training Pilot
23
TAX LIABILITY IF NET GAIN
• Qualified dividends are taxed as longterm capital gains
– But are not offset by capital losses
• TaxWise does the calculation
EKS Advanced Training Pilot
24
SCHEDULE K-1
CAPITAL 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
EKS Advanced Training Pilot
25
SCHEDULE K-1
CAPITAL GAINS OR LOSSES
EKS Advanced Training Pilot
26
CAPITAL GAINS QUIZ #1
• The taxpayer paid $1,000 for 100 shares
of XYZ stock
• What is his cost basis per share in XYZ?
EKS Advanced Training Pilot
27
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
EKS Advanced Training Pilot
28
CAPITAL GAINS QUIZ #2
• 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?
EKS Advanced Training Pilot
29
CAPITAL GAINS #2 ANSWER
• 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
EKS Advanced Training Pilot
30
CAPITAL GAINS QUIZ #3
• 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?
EKS Advanced Training Pilot
31
CAPITAL GAINS #3 ANSWER
• 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)
EKS Advanced Training Pilot
32
CAPITAL GAINS QUIZ #4
• 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?
EKS Advanced Training Pilot
33
CAPITAL GAINS #4 ANSWER
• 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)
EKS Advanced Training Pilot
34
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
EKS Advanced Training Pilot
35
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?
EKS Advanced Training Pilot
36
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
EKS Advanced Training Pilot
37
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 Pilot
38