VITA: Winter 2011
Lesson 10: Capital Gains and Losses
(Stock/Mutual Fund Sales and Sale of
Principal Residence)
Winter 2011
Kristina Shroyer
© Kristina Shroyer 2011
Lesson 10: Capital Gains and Losses

Blank Forms for this Lesson

As we go through this lesson you'll want to use some of the blank forms in
Publication 4491-W for reference (blank forms start on Page 229)
♦

Form 1040 (page 229)
♦



Look at Line 13
Schedule D (page 260-261)
♦

There are also a couple of forms from the Chapter I'll point out as we go
This is the support/backup for line 13, where the details of line 13 are
summarized
Example Form 1099-B for stock/mutual fund sales (page 134)
Example Form 1099-S (I couldn't find an example in your book, I'll show you
one in class, you can also get one at www.irs.gov )
Note: Cancellation of Debt was in last year's Lesson 10 but this
year has been moved to an online special topic. I still have last
year's slides but since it's now a Special topic only
© Kristina Shroyer 2011
Lesson 10: Capital Gains and Losses

Sales of Assets/Investment Property – Capital Gain or Loss


In general when a taxpayer sells an asset they must pay taxes on any profit (capital
gain) they make on the sale
♦
If they taxpayer has a loss (capital loss) on the sale they rules for the deductibility
of the loss vary based on the type of asset and the taxpayer's situation
What is in the scope of VITA for this topic?



Stock/Mutual Fund Sales
Sale of Principal Residence (main home)
Cancellation of Mortgage Debt is a special advanced topic
♦
We won't cover it in class due to time limitations but we will post notes on it from last
year for those people interested
♦
You can also learn the topic on link and learn and get a special
certification in it


http://www.irs.gov/app/vita/index.jsp (scroll down to the bottom of
the page and on the lower left the course is under "Optional
Specialty Courses)
Any taxpayer with sales of assets/investment property other than the above types
should be referred to a professional tax preparer
© Kristina Shroyer 2011
Lesson 10: Capital Gains and Losses

How are Stock Sales Reported to the Taxpayer?

Form 1099-B
♦
Let's take a look at the form

I got all these forms from the IRS website
-

select "Download Forms and Publications – Form and Instruction
Number"
We'll look at the form in more detail as we go but this is the general
idea and the main lines you will see numbers in
♦
♦
♦

Go to http://www.irs.gov/formspubs/index.html?portlet=3 - I usually then
Line 1 will show the date of the stock or mutual fund sale
Line 2 will show the proceeds received
Line 4 will show any Federal Income tax withheld from the sale proceeds
How is the Sale of a Principle Residence Reported to the
Taxpayer?

Generally (not always) reported on Form 1099-S
♦
♦
If not reported on Form 1099-S you will need to get the closing papers on
the sale from the taxpayer
We'll look at 1099-S more closely later in the lecture
© Kristina Shroyer 2011
Lesson 10: Capital Gains and Losses

How are capital gains and losses reported on the tax
return?
1.
First a Schedule D is filled out to determine the overall deductible
gain or loss

This form is on page 260-261 of your Publication 4491-W
2.
The deductible gain or excludible loss goes on line 13 of Form
1040

In the Interview/Screening process you will need to determine
whether the taxpayer has sold any stock, mutual funds, or a
home that is their principal residence




For the interview, first look for the Forms 1099S or 1099B – but don't assume
because they don't have the Forms they haven't sold assets, make sure and ask
them in the interview
If they have sold anything other than a principal residence or stock/mutual fund
they should be referred to a professional
If they have forgiveness of debt on a principal residence they may be within the
scope of VITA (this is the Special topic you can look at on Link and Learn if You
are interested)
Page 10-1 in your Publication 4491 cites some other sources of
information for these topics – you can find everything at the IRS
website
© Kristina Shroyer 2011
Lesson 10: Capital Gains and Losses
What information is needed to report Capital Gains and Losses?

1.
2.
3.
Basis/Adjusted Basis
Holding Period (Short Term or Long Term)
Proceeds from the Sale
♦
♦
For Stock Sales you will get the Proceeds and Sale Date on Form 1099-B
For Sale of Principal Residence you will get the Proceeds and Sale Date on Form 1099-S
Realized Gain or Loss = Proceeds from Sale – Basis/Adjusted Basis


We're going to see there is a difference between a realized gain or loss and a
recognized gain or loss

The Schedule D basically lists each stock/mutual fund/other asset sale and
calculates the gain or loss for each one, the taxpayer then pays tax on the
net gain or loss from all the sales

I'm going to start out talking about stock and mutual fund sales but you're
going to see these concepts also apply to sale of principle residence and
foreclosures/abandonments (part 2 of this lesson)

You'll see when you start using the TaxWise software the computer does the
calculations for you

You just enter the sale date, sales proceeds, purchase date and basis
♦
However you need to be able to read the forms to make sure everything is calculating right –
DON'T RELY on the computer
© Kristina Shroyer 2011
Lesson 10: Capital Gains and Losses

Basis/Adjusted Basis - What is the basis of Stock?

The basis of a stock or other property is usually it's COST.

NOTE: This information MUST be provided by the taxpayer
♦
♦
♦
It will NOT be reported on the 1099-B
Sometimes the broker may give the taxpayer a year end statement that
provides this information but they are not required to (See Page 10-7 for an
example)
You can NOT calculate the basis for the taxpayer



The best thing to do for a taxpayer that needs help calculating their basis is to
refer them to their stockbroker
They may need to dig into their past financial records
IMPORTANT: If the taxpayer cannot provide the basis for their property
the IRS deems the basis to be zero

There are special rules for determining the basis of a stock acquired by
means other than purchase or inheritance (we'll talk about special
inheritance basis rules in a second)
♦
Any stock acquired by means other than purchase or inheritance is out of
the scope of VITA
© Kristina Shroyer 2011
Lesson 10: Capital Gains and Losses

Basis/Adjusted Basis - What is the adjusted basis of Stock?


Sometimes amounts should be added or subtracted to the original cost of a stock or property to get the actual
basis to use when calculating a gain or loss
♦
This is called calculating the adjusted basis, adjusted basis is the result of making additions and/or
subtractions to the original cost basis
The most common addition to basis you will see is commissions or fees paid
when a stock is purchased or sold

Let's say the taxpayer paid $1000 for 100 shares of stock plus $25 commission on the purchase, the
taxpayer's total basis for that stock is $1025
♦

If the taxpayer sold all 100 shares of the stock for $2000, the gain is $975 ($2000-1025)
Some other adjustments to basis

Stock Splits
♦
A four for one stock split means every one share of the taxpayers stock is now four shares




Stock Dividends
♦
♦

This in effect decreases price per share
So if a taxpayer bought 1000 shares of $1,000 the original cost per share is $1
If there was a 4 for 1 split (so there are now 4000 shares) on the about the cost per share is now - $0.25/share
In this case taxpayers get additional shares of stock instead of cash dividends…as we saw above additional
shares decreases basis
Any stock dividends the taxpayer receives should be spread over all the shares…so if they bought 1000
shares for $1,000 (cost per share $1) but then received a 100 share stock dividend they now have 1100
shares for $1000 (cost per share is 91 cents per share)
Important Note: Cost per Share = (total cost of shares/# of shares)

Look at the Example on page 10-3 of Publication 4491

Review Question: On what form are regular cash dividends reported?
© Kristina Shroyer 2011
Lesson 10: Capital Gains and Losses

Basis/Adjusted Basis - What is the adjusted basis of Stock? (continued)


IMPORTANT NOTE: Stock is bought and sold in various quantities, you can NOT assume the
taxpayer sold all their shares at once, that's why we've been calculating cost per share



Sometimes amounts should be added or subtracted to the original cost of a stock or property to get the actual basis to
use when calculating a gain or loss
♦
This is called calculating the adjusted basis, adjusted basis is the result of making additions and/or subtractions to
the original cost basis
The taxpayer may also by various quantities of the same stock at different times
Unless the taxpayer has directed the broker to sell certain shares it is always assumed shares are sold using a
FIFO (first in first out) method
Some other adjustments to basis (continued)

DRIP (Dividend Reinvestment Plan) Accounts
♦

With this kind of account instead of paying out dividends, the dividends are used to purchase additional shares of
stock
Mutual Funds
♦
♦
♦
A mutual fund pools money together from thousands of small investors and then its manager buys stocks, bonds or
other securities with it. When you contribute money to a fund, you get a stake in all its investments. This allows the
investor to diversity in investments and professional management.
Original basis of purchased mutual fund shares is purchase price plus commissions/load charges
The basis of mutual fund shares acquired by dividend reinvestment is the amount of the dividend distribution
used to purchase each full or fractional share.

♦

This rule applies even if the distribution used to purchase the original shares was a tax exempt dividend not reported as
income
There are also adjustments that may need to be made to the basis of mutual funds (more info in Publication 550)
Reminder: Cost per Share = (total cost of shares/# of shares)
© Kristina Shroyer 2011
Lesson 10: Capital Gains and Losses

Basis Other than Cost


Property Received as a Gift


Sometimes cost cannot be used as basis, in these cases FMV (Fair Market Value) or another adjusted basis
calculation is used, most of these cases are outside the scope of VITA and should be referred to a professional
tax preparer
Beyond the scope of VITA – refer client to a professional taxpayer
Inherited Property – for property where decedent died BEFORE 01/1/10

Basis should be the Fair Market Value of the property at the date of the decedent's death
♦
♦

However the estate can elect to use an alternate valuation date or other acceptable method
♦

FMV at DOD rule
From the way I read it you can do returns for inherited stocks/mutual funds as long as the FMV at DOD
rule is used
This is out of scope of VITA
Inherited Property – for property where decedent died AFTER 12/31/09 and
BEFORE 01/01/11


Due to the repeal of the estate tax for decedents dying in 2010, basis for assets inherited from
decedents who died in 2010 is calculated differently
This is out of scope of VITA
♦
♦
The book does say if the taxpayer knows the basis and does not need help from the VITA
volunteer in computing the basis that we may do the return
However in the holding period part of the book it again says this is out of scope, I say go with this
is out of scope for VITA
© Kristina Shroyer 2011
Lesson 10: Capital Gains and Losses

Holding Period – Long Term or Short Term


To determine the holding period of stock or property



Remember this is the second item you need to know to report capital gains and losses:
Basis/Adjusted Basis, Holding Period, Proceeds from Sale
the taxpayer must provide the purchase date to determine the holding period of the property
the sale date will be on the 1099-B
Holding Periods



Short Term (a year or less)
Long Term (more than a year)
The holding period begins on
♦

The holding period ends on
♦


the day the shares were sold
If a stock or investment property is inherited its holding period is long term no
matter what
If a stock has had a split or non taxable stock dividend the holding period is the
same as the original stock (no new holding period)


the day after the shares were purchased
See the second example at the bottom of page 10-4
Holding periods are important because long term gains have a more favorable tax
rate than short term gains
© Kristina Shroyer 2011
Lesson 10: Capital Gains and Losses

Holding Period – Long Term or Short Term

Complicated stock situations such as wash sales, like kind exchanges or worthless securities should be
referred to a professional tax preparer

What is a mutual fund?


A mutual fund pools money together from thousands of small investors and then its manager buys stocks, bonds or other
securities with it. When you contribute money to a fund, you get a stake in all its investments. This allows the investor to
diversity in investments and professional management.
Capital Gain Distributions vs. Sales of Investments


Mutual funds can have both (and can receive both a 1099-DIV to report capital gain dist and a 1099-B to report shares they
sold themselves)
Capital Gain Distributions are reported on a 1099-DIV and are a result of sales within the mutual fund (the taxpayer
themselves did not sell anything)
♦
♦

The taxpayer will only receive a 1099-B if they actually sold shares of their fund
♦


Let's look at form 1099-DIV (line 2a)
Always long term and go on a special place on the Schedule D
In this case basis computation can be complex, Publication 550 can help in this situation

In general reinvested dividends or capital gain distributions have a holding period which begins the day after the share
purchase date

Mutual fund shares also may be purchased on different dates and different times, with mutual funds there is an average basis
method taxpayers may use when shares are purchased at different dates and times (don't forget reinvested dividends)
How to calculate the basis of each stock share
Taxpayers may not sell all their shares in a stock or fund at once and these shares may have been
purchased at different times

A taxpayer may direct a broker on which shares to sell
♦
♦

This must be done at the time of sale NOT AFTER
If this is done use the specified shares to determine the basis and holding period
If the taxpayer does NOT do this (which is normally the case)
♦
Use FIFO

First/Oldest shares purchased were the ones sold.

See Example on Page 10-5
© Kristina Shroyer 2011
Lesson 10: Capital Gains and Losses

What Information to get from Form 1099-B



The taxpayer will need to provide information on the basis/adjusted basis of their stock/investment and on the
purchase date
The rest of the information you will get from the 1099 – B
Sales Date – The sales date of the stock is reported in Box 1a of Form 1099-B

So when you use the software you will enter the purchase date and the sales date and the computer will use this to
calculate the holding period
♦

Entering the dates correctly is very important
Sales Price – The sales price of the stock is reported in Box 2 of form 1099-B


There are two boxes next to where the sales price is reported
If the Gross proceeds box is checked
♦

Ask the taxpayer for the amount of commissions and fees paid on the sale and add it to the taxpayers stock BASIS
If the Net Gross Proceeds less commissions and options premiums box is checked
♦
This means the broker has subtracted commissions and fees from the sale so no adjustment to the basis is needed
(subtracting it from the sale has the same effect as adding it to the basis)

Look at the Example on bottom of page 10-6

Look at the Exercise on page 10-7 (make sure and read this one – this is a trick question)

NOTE: the 1099-B does NOT report purchase date or basis, the taxpayer MUST provide this (it
could be done with a substitute 1099-B (see page 10-7) but no matter what you can NOT calculate
the taxpayer's basis, if they do not know remember the basis is deemed to be zero)
© Kristina Shroyer 2011
Lesson 10: Capital Gains and Losses

How to enter Stock/Mutual Fund Sales on Schedule D

In TaxWise you will just enter the information reported in the proper places and it will
be put into the correct section of the forms
♦
♦

However you should understand how it works on paper so you know it is correct
You should ALWAYS check all the forms on the taxpayers return and make sure each
figure is correct
Before you start entering data make sure you have the sales dates/sales prices from
the 1099B's and the adjusted basis/purchase dates from the taxpayer

Sch D Part I – Short Term Sales are reported here
Sch D Part II – Long Term Sales are reported here

Where are Capital Gain Distributions Reported?



Again when using the software if you enter this in the correct spot it will be reported
in the correct spot
If a taxpayer ONLY has Capital Gain Distributions (only a 1099-DIV) the amount is
entered directly on line 13 of form 1040
♦

So in this case no Sch D is used
If a taxpayer has a 1099-DIV and a 1099-B then:
♦
Capital Gain Distributions are always long term and are reported on Schedule D Part
II, Line 13 (this is the LONG TERM section)
© Kristina Shroyer 2011
Lesson 10: Capital Gains and Losses

How to enter Stock/Mutual Fund Sales on Schedule D

Once you have Part I and Part II of the Sch D completed
1.
2.
3.
The short term gains/losses will be combined to compute a net
short term gain/loss
The long term gains/losses will be combined to compute a net
long term gain/loss
The long term and short term capital gains/losses are then
combined
♦
Losses cannot exceed $3000 per year ($1500 for Married Filing Separate)


♦

If the losses for the year exceed $3000 the excess is carried forward to
the next tax year where it can be used
Losses carried forward keep their ORIGINAL holding period
We'll talk a bit more about carryforward losses in a second
Let's look at the Exercise on Page 10-9 (Question 3)
© Kristina Shroyer 2011
Lesson 10: Capital Gains and Losses

Capital Loss Carryovers


Taxpayers cannot take losses of more than $3,000 ($1,500 for MFS) in any one year
For Schedule D you will need to know if the taxpayer had a capital loss carry foward from the
PRIOR year, you need to know this because it can be used to offset 2010 capital gains or if 2010
had a capital loss, this prior year loss still needs carried forward to 2011
♦
♦
Unused losses are carried forward until they are used up
A taxpayer may have an used carry forward loss from 2009 – you'll need to find this information out



If TaxWise was used in 2009 the information is on Worksheet 2
If some other tax software was used or the taxpayer had the return prepared professionally in 2009 you
may be able to find the information in a worksheet
If tax software was not used to prepare the prior year return: Use the worksheet in the Sch D
instructions to compute a carry forward from 2009 to 2010
-


IMPORTANT: If your taxpayer has capital gains and/or losses in 2010 and had a Schedule D of
any type in 2009 you absolutely need the 2009 tax return in order to correctly complete the 2010
return
The 2010 carry forwards go on Part I line 6 or Part II line 14


YOU WILL NEED THE 2009 RETURN TO DO THIS
Note that TaxWise will automatically calculate a taxpayer's capital loss and if over the limit will calculate
the carry forward.
If the taxpayer has carry forwards from 2010 to future years tell them to make sure to
take their 2010 tax return to their 2011 tax appointment
© Kristina Shroyer 2011
Lesson 10: Capital Gains and Losses

Sale of a Home (Principle Residence)

This is the second type of asset sale within the scope of VITA

The second capital gain/loss within the scope of VITA is the sale of a
taxpayer's MAIN home

During the interview process you will determine if the taxpayer sold their
principal residence ("main home") during the year


If they did sell their home for a gain, all or part of it may be excludable from taxable income
Who must REPORT the sale of a home?

Taxpayers must report the sale of a home if any ONE of the following is true:
♦
♦
♦
♦
The taxpayer does not meet the ownership test
The taxpayer does not meet the use test
During the two year period ending on the date of sale the taxpayer has excluded the gain from the
sale of another home
The gain from the sale is more than the taxpayer can exclude (maximum exclusion)

♦

The maximum exclusion is $250,000 for individual taxpayers and $500,000 for Married Filing Jointly
IMPORTANT: even if the taxpayer is not required to report a sale (they have a loss or a fully
excludable gain) you should still report it so the taxpayer will not get an IRS notice
IMPORTANT: Read the "Caution" at the bottom of page 10-11

More on this will come up later but it's important you ask the taxpayer if they claimed the first-time
homebuyer credit on the home they sold
© Kristina Shroyer 2011
Lesson 10: Capital Gains and Losses

What is a main home?

This is the first thing you must determine
♦
♦
Only the sale of a taxpayer's main home is within the scope of VITA
Only a gain on the sale of a taxpayer's main home may be potentially excluded from
taxable income


A taxpayer's main home is where the taxpayer lives most of the time
♦
♦

It does not have to be a traditional house but must have cooking, sleeping, and
bathroom facilities
The main home cannot be chosen by the taxpayer (see example on 10-12)
NOTE: A taxpayer does NOT get to deduct a loss on the sale of their
main home


In most cases a gain from a home that is not the taxpayer's main home will have to be
reported as income
So they may have to report some or all of their gain (or none) but they never report a
loss on the sale
Once you've determined the taxpayer sold their main home you start
looking at whether they meet the tests to be able to exclude the gain

There will be three tests and some special situations you'll need to look at
© Kristina Shroyer 2011
Lesson 10: Capital Gains and Losses

Ownership and Use Tests

1.
Ownership Test

2.
The taxpayer must meet BOTH of these tests to be able to exclude all or part of the gain on the sale of
their main home
The taxpayer must have owned the home for at least two years
♦
The two years do not have to be continuous – HOWEVER, the taxpayer must show they met the
ownership test for a total of 24 months (2 years) during the five year period ending on the date of
sale
Use Test

The taxpayer must have lived in the home as their main home for at least two years
♦
The two years do not have to be continuous – HOWEVER, the taxpayer must show they met the
ownership test for a total of 24 months (2 years) during the five year period ending on the date of
sale

There are some exceptions for the Armed Forces, intelligences personnel and
Peace Corps volunteers we will look at in a minute

Reduced Exclusion

If the taxpayer doesn't meet the above tests but meets some special circumstances they
may qualify for this
♦

Examples of special circumstances: health, change in place of employment, other unforseen
circumstances
This is out of the scope of VITA – refer to professional taxpayer
© Kristina Shroyer 2011
Lesson 10: Capital Gains and Losses
Prior Exclusion Test
3.
To qualify for the exclusion on the sale of a home the taxpayer cannot have
claimed on exclusion on the sale of another home during the two year period
ending on the sale date

Married Homeowners

Individual taxpayers get an exclusion of up to $250,000 if they qualify
Married Homeowners can exclude up to $500,000 if they meet ALL of the following
tests


♦
♦
♦
♦
They file a joint return (MFJ)
One or both of the spouses meet the ownership test
BOTH spouses meet the use test
NEITHER spouse excluded a gain in the two years prior on a home sale
If both spouses don't meet ALL of the above tests, another calculation is done

♦
This calculation is outside the scope of VITA and they should be referred to a
professional tax preparer
Sale of Main Home by Surviving Spouse


(for main home sales after 2007 only)

A $500,000 exclusion is allowed for an unmarried surviving spouse if they meet all
tests (use, ownership, prior exclusion) and the sale occurs no later than 2 years
after the date of the deceased spouse's death
© Kristina Shroyer 2011
Lesson 10: Capital Gains and Losses



Calculating the Gain/Loss from Sale of a Main Home
You do this once you have figured out the taxpayer is eligible for an exclusion on
any gain on the sale (four tests)
The General Process:
1. First figure out the REALIZED gain or loss
♦
This is just the gain or loss without taking the exclusion into consideration (it is calculated in a way
similar to the gain or loss on stocks/mutual funds)

Basically: amount realized on sale – adjusted basis = realized gain or loss
2. If there is a loss on the home sale you are finished, nothing needs to be reported on the tax
return but we will report it anyway (see note below)
♦
♦
IMPORTANT NOTE: However, even though you're not required to report this on the tax return it's a
good idea to report it anyway because without it you could generate a document matching error for the
taxpayer
See tips at bottom of page 10-14: They have fixed this in the book from last year
3. If there is a realized gain, figure out the allowable exclusion ($250,000 or $500,000)
♦
If the allowable exclusion is greater than the realized gain none of it is taxable and nothing needs to be
reported on the tax return but we sill report it anyway (see note below)


♦
IMPORTANT NOTE: However, even though you're not required to report this on the tax return it's a good
idea to report it anyway because without it you could generate a document matching error for the taxpayer
See tips at bottom of page 10-14: They have fixed this in the book from last year
If the allowable exclusion is less than the realized gain the sale must be reported on Schedule D
© Kristina Shroyer 2011
Lesson 10: Capital Gains and Losses
Figuring out the Realized Gain or Loss
1.

First determine the Selling Price
♦
♦
This is basically the gross proceeds received from the sale
If the taxpayer receives 1099-S:


♦
If the taxpayer doesn't receive a 1099-S


Box 1 shows the sales date
Box 2 shows the gross proceeds from the sale
You will need to use the closing papers on the loan – if the taxpayer is showing a taxable
gain you should request the closing papers even if they did not receive a 1099-S
Next determine the Amount Realized
♦
♦
This is the selling price minus any selling expenses
This means the amount realized in most cases will not equal the selling price

Look back at our formula for realized gain: amount realized on sale –
adjusted basis = realized gain or loss
♦
Selling Expenses: commissions, advertising fees, legal fees, loan charges,
points


There is a worksheet in TaxWise that will help you do this
Or you can use Worksheet 2 of Publication 523 (get at www.irs.gov)
Page 13
© Kristina Shroyer 2011
Lesson 10: Capital Gains and Losses
1.
Figuring out the Realized Gain or Loss (cont.)

Next Determine the Basis
This is the cost if the taxpayer purchased or built the home
If the taxpayer inherited the home the basis is FMV at DOD (unless the property was inherited in 2010
in which case you should refer the taxpayer to a professional tax preparer)
If the taxpayer got the home as a gift or inherited it and needs to use a method other than FMV at
DOD refer them to a professional tax preparer



Finally Determine the Adjusted Basis

As with stocks basis can be increased or decreased by certain amounts
Increases


♦
Improvements to the home

The improvements should have a useful life of more than one year
Decreases

♦
Deductible casualty losses, depreciation
Adjusted Basis = Basis + Increases – Decreases
Worksheet 1 in Publication 523 can also be used for Adjusted Basis


♦
Page 12

REALIZED Gain/Loss on Home Sale = Amount Realized – Adjusted Basis

Worksheet 2 of Publication 523 also does all this


Page 13 of Publication 523
The realized gain or loss is not the same as the recognized gain or loss, realized is
the actual gain or loss and recognized is the amount reported on the tax return
© Kristina Shroyer 2011
Lesson 10: Capital Gains and Losses
If there is a realized LOSS
2.
The loss is NOT deductible
If the taxpayer received a 1099-S you should still record the sale on the tax return but NONE
of it is deductible, make sure after entering it in Taxwise that the recognized gain or loss is
ZERO


IF THERE IS A REALIZED GAIN: How much of the REALIZED gain from a main
home sale can the taxpayer exclude?
3.
If all requirements are met the an individual taxpayer can exclude up to $250,000 of the gain and married
taxpayers can exclude up to $500,000 of the gain

♦
If not out of VITA scope
Where to report any taxable (recognized) gain?
Gains on the sales of main homes do NOT need to be reported if the gain is less than the
taxpayer's exclusion


Though as I said earlier I recommend reporting them anyway to avoid document matching errors – if
the taxpayer received a 1099-S REPORT THE TRANSACTION EVEN IF THERE IS NO TAXABLE GAIN

Gains in excess of the taxpayer's exclusion must be reported on Schedule D

So if the taxpayer's gain is over $250,000/$500,000 the excess amount needs to be reported

It is going to be reported in the long term section of the Schedule D

♦

See Page 10-16 for an example
The entire gain is reported and the exclusion is then subtracted
© Kristina Shroyer 2011
Lesson 10: Capital Gains and Losses

Five Year Test Period Suspension

If the taxpayer served on "qualified official extended duty"
as a member of the Armed Forces, an employee of the
intelligence community or a Peace Corps employee or
volunteer they can choose to have their five year test
period suspended (for ownership and use)
♦
♦
Read through the page 10-18 on this for more, we don't
generally get many members from the Armed Forces at our
site but if we do the information is here
If this comes up with a taxpayer more information can be
found in Publication 523
© Kristina Shroyer 2011