Capital Gain & Loss Netting Process
4/20/2015
SAMPLE EA Webinar – Part 1 Topic 6 Capital Gain & Loss Netting Process
References Used in Slides • Color Code Description of Topic - Based on analysis of last 10 publicly-available exams: – 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
1
4/20/2015
*6A Capital Gain and Loss Netting Process [R] • 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): – 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 • Question 1 3
Figure 1 2011 2012 2013 Current-Year Capital Transactions (Before c/o): ST Gain $16,000 $18,000 $ 3,000 ST Loss (18,000) (26,000) ( 2,000) LT Gain 24,000 2,000 8,000 LT Loss (12,000) ( 1,000) ( 2,000) Net Results: Net ST ( 2,000) ( 8,000) ( 3,000) Net LT 12,000 1,000 6,000 Adjusted Gross Income: Salary $70,000 $70,000 $70,000 Capital 10,000* ( 3,000) 3,000* AGI $80,000 $67,000 $73,000 Capital Loss Carryovers (c/o): ST Loss c/o 0 ( 4,000) 0 LT Loss c/o 0 0 0 * Qualifies for 15% maximum rate
2014
2015
$ 2,000 ( 6,000) 4,000 ( 8,000)
$ 9,000 ( 1,000) 8,000 ( 6,000)
( 4,000) ( 4,000)
7,000 ( 2,000)
$70,000 ( 3,000) $67,000
$70,000 5,000 $75,000
( 1,000) ( 4,000)
0 0
4
2
4/20/2015
Question 1 During 2014, George sold the following shares of stock: • • • • •
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 5
6B Preferential Tax Rates for Long-term Capital Gains [G] • • • • •
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.
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 2 • Question 2 6
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4/20/2015
Figure 2 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)
SAMPLE EA Webinar – Part 1 Topic 6 Capital Gain & Loss Netting Process
References Used in Slides • Color Code Description of Topic - Based on analysis of last 10 publicly-available exams: – 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
1
4/20/2015
*6A Capital Gain and Loss Netting Process [R] • 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): – 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 • Question 1 3
Figure 1 2011 2012 2013 Current-Year Capital Transactions (Before c/o): ST Gain $16,000 $18,000 $ 3,000 ST Loss (18,000) (26,000) ( 2,000) LT Gain 24,000 2,000 8,000 LT Loss (12,000) ( 1,000) ( 2,000) Net Results: Net ST ( 2,000) ( 8,000) ( 3,000) Net LT 12,000 1,000 6,000 Adjusted Gross Income: Salary $70,000 $70,000 $70,000 Capital 10,000* ( 3,000) 3,000* AGI $80,000 $67,000 $73,000 Capital Loss Carryovers (c/o): ST Loss c/o 0 ( 4,000) 0 LT Loss c/o 0 0 0 * Qualifies for 15% maximum rate
2014
2015
$ 2,000 ( 6,000) 4,000 ( 8,000)
$ 9,000 ( 1,000) 8,000 ( 6,000)
( 4,000) ( 4,000)
7,000 ( 2,000)
$70,000 ( 3,000) $67,000
$70,000 5,000 $75,000
( 1,000) ( 4,000)
0 0
4
2
4/20/2015
Question 1 During 2014, George sold the following shares of stock: • • • • •
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 5
6B Preferential Tax Rates for Long-term Capital Gains [G] • • • • •
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.
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 2 • Question 2 6
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4/20/2015
Figure 2 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)
