Part 1
Individuals
1
Two Cardinal Rules in Studying
for the Enrolled Agents Exam
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Rule 1 – There are absolutely NO shortcuts in
studying for the EA Exam
Rule 2 – Refer to Rule 1
2
Pyramid Approach to Studying
Final Review Cards
PowerPoint Webinar Presentation
NSA EA Exam Review Course
IRS Publications
3
References Used in Slides

Color Code Description of Topic - Based on
analysis of last 10 publicly-available exams:
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Red [R] – Basic knowledge topic asked frequently
Blue [B] – Complex topic asked fairly frequently
Green [G] – Basic topic asked less frequently
Yellow [Y] – Complex topic seldom tested
* (asterisk) - Indicates at least 7 questions on
the topic on last 10 publicly-available exams
4
Topic 30
Capital Gain & Loss
Netting of Individuals
5
*30A Capital Gain and Loss Netting
Process [R]
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3-Step Process – (1) Net all S/Ts, (2) Net all L/Ts, (3)
if same sign, add separately to income; if opposite
signs, add net difference to income (Note: LT > 1yr)
Final Result – 4 Basic Rules (for one transaction):
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S/T Capital Gain – Treat as ordinary income
S/T Capital Loss - $3,000 offset against ordinary income
L/T Capital Gain – 15% max. rate (0% if 10% or15%
ordinary income bracket, 20% if 39.6% ordinary bracket)
L/T Capital Loss - $3,000 offset against ordinary income
Figure 1-8
Question 99
6
Figure 1-8
2010
2011
2012
2013
Transactionsrrent-Year Capital Transactions (Before c/o):
ST Gain
$16,000
$18,000
$ 3,000
$ 2,000
ST Loss
(18,000)
(26,000)
( 2,000)
( 6,000)
LT Gain
24,000
2,000
8,000
4,000
LT Loss
(12,000)
( 1,000)
( 2,000)
( 8,000)
Net Result:
Net ST
( 2,000)
( 8,000)
( 3,000)
( 4,000)
Net LT
12,000
1,000
6,000
( 4,000)
Adjusted Gross Income:
Salary
$70,000
$70,000
$70,000
$70,000
Capital
10,000*
( 3,000)
3,000*
( 3,000)
AGI
$80,000
$67,000
$73,000
$67,000
Capital Loss Carryovers (c/o):
ST Loss c/o
0
( 4,000)
0
( 1,000)
LT Loss c/o
0
0
0
( 4,000)
* Qualifies for 15% maximum rate
2014
$ 9,000
( 1,000)
8,000
( 6,000)
7,000
( 2,000)
$70,000
5,000
$75,000
0
0
7
Question 99
During 2014, George sold the following shares of stock:
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Stock
V Corp.
Q Corp.
A Corp.
J Corp.
Purchased
5/18/09
8/16/13
2/14/13
3/27/14
Basis
$ 300
$3,000
$1,200
$2,000
Sold
9/3/14
1/6/14
1/9/14
9/2/14
Proceeds
$1,000
$2,500
$ 600
$3,500
What is George’s net capital gain or loss for 2014?
a. $(1,100)
b. $(1,200)
c. $1,100
d. $1,200
8
30B Preferential Tax Rates for
Long-term Capital Gains [G]
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If Net L/T Gain – Determine appropriate rates
15% (or 0%) - Basic rate for most L/T capital gains
25% - For “unrecaptured Sec. 1250 gain” on realty
28% - For collectibles, Sec. 1202 stock gain, & all c/o
Step Netting Process – Four columns for 4 rates:
1.
2.
3.
4.
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If 15% Nets to a Loss – Net against 28% result first
If S/Ts Net to a Loss – Net against 28% result first
If 28% Nets to a Loss – Net against 25% result first
If 25% Nets to a Loss – Net against 15% result
Figure 1-9
Question 100
9
Figure 1-10
All
Short-Term
(4,000)
9,000
(9,000)
28%
25%
15%
Long-Term* Long-Term Long-Term
(5,000)
14,000
(10,000)
4,000
6,000
12,000
1,000
(3,000)
(4,000)
8,000
14,000 **
(3,000)
|
(3,000) <--------------------------v
v--------- (4,000)
1,000 **
* Includes any long-term capital loss carryover
** Result - $1,000 taxed at a 28% rate, and $14,000 taxed at a 25% rate
10
Question100
In December, Emily sold an antique rug for $4,100. She
bought the rug two years ago for $1,100. What is her
taxable gain and at what maximum rate will it be taxed?
a. $3,000 long-term capital gain, taxed at regular rate
b. $3,000 long-term capital gain, taxed at 28% rate
c. $1,500 long-term capital gain, taxed at regular rate
d. $1,500 long-term capital gain, taxed at 28% rate
11
*30C Tax Treatment of Net Capital
Losses [R]
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$3,000 – Maximum combined ordinary income offset
for net S/T and net L/T losses each yr. (use S/T first)
$1,500 – Married – filing separately limit
If Taxable Income < Capital Loss – Full limit (up to
$3,000) still assumed utilized in computing carryover
Capital Loss Carryover – Indefinite (retain character)
Decedent’s Return – No carryovers possible
Question 101 and Question 102
12
Question 101
During the current year, Nancy had the following transactions:
 Short-term capital loss
$(2,400)
 Short-term capital gain
2,000
 Short-term capital loss carryover from 2013
(1,400)
 Long-term capital gain
3,800
 Long-term capital loss
(8,000)
What is the amount of her capital loss deduction, and what is the amount and
character of her capital loss carryover to the next year?

Deduction
Carryover
a.
$0
$6,000 long-term
b.
$3,000
$3,000 long-term
c.
$6,000
$-0d.
$3,000
$3,000 short-term
13
Question 102
Bob sold securities in 2014. The sales resulted in a capital
loss of $7,000. He had no other capital transactions. He and
his wife Gloria decide to file separate returns for 2014. His
taxable income was $26,000. What amount of capital loss
can he deduct on his 2014 return and what amount can he
carry over to 2015?
a. $7,000 in 2014 and $0 carryover
b. $3,000 in 2014 and $4,000 carryover
c. $4,000 in 2014 and $3,000 carryover
d. $1,500 in 2014 and $5,500 carry over
14