1. Lesson 12 Sale of Stock & Other Investment Property

2. Objectives Compute adjusted basis of stock or other investment property Determine if an asset’s holding period is long-term or short-term Calculate the taxable gain or deductible loss using the Schedule D Calculate the correct tax liability

3. Intake/Interview Process Form 13614 – Intake and Interview Sheet - Income Section

4. Investment Property Property that produces investment income Stocks Bonds Mutual Funds Treasury Bills & Notes

5. Basis of Investment Property The basis of an asset is usually its cost Basis is +/- by certain events, resulting in adjusted basis Adjustments Include: Brokerage commissions paid (buying & selling) Stock splits & tax-fee stock dividends Reinvested dividends Reinvested capital gain distributions

6. Sale of Investment Property Capital gains or losses are only reported when a sale, exchange, or other disposition of investment property occurs. Redemption of Stock or Bonds Sale/Exchange of Mutual Fund Shares Worthless Securities Other Sales & Trades

7. Identifying Shares Sold Specific Identification Identification Not Possible Mutual Fund Shares − Cost Basis − Average Basis

8. Holding Period Stock held for more than 12 months is considered long-term property Stock held for 1 year or less has a short- term holding period Inherited property (long-term property) Nontaxable stock dividends and stock splits (same holding period as the original stock)

9. Determining Gain or Loss Amount realized – adjusted basis = gain/loss reported on Schedule D What You Will Need −Form 1099-B, Proceeds From Broker and Barter Exchange Transactions or consolidated brokerage statement −Date property was acquired −Taxpayer’s records of basis

10. Commissions and Fees Commissions paid when investment property is purchased - add to basis Commissions paid at the time of sale may increase basis −If 1099-B shows gross proceeds, add the commission to the basis −If 1099-B shows net proceeds, no adjustment to basis is necessary

11. Reporting Transactions on the Tax Return Capital gains & losses are reported on Schedule D Schedule D has three sections − Part I - Short-term transactions − Part II - Long-term transactions − Part III – Summary If space is needed to report additional transactions, use Schedule D-1

12. Reporting Transactions on the Tax Return - cont’d Combine net S-T capital gain/loss with net L-T capital gain/loss (Part III) If losses exceed gains, the taxpayer has a total net capital loss If gains exceed losses, the taxpayer has a total net capital gain;

13. Capital Gain Distributions 13 Reported on Form 1099-DIV, box 2a If taxpayer received only capital gain distributions, Schedule D not required If taxpayer sold investment property or had unused capital loss carryovers, report capital gain distributions on line 13 of Schedule D

14. Total Net Capital Loss If taxpayer has a net capital loss, claim the lesser of: 1. The total net loss or 2. $3,000 ($1,500 – if MFS) Capital Loss Carryovers 1.Carryover until used up 2.Retain character

15. Total Net Capital Gain If taxpayer has a net capital gain, apply capital gains tax rates Capital Gains Tax Rates: 5% - 28% To figure Capital Gains Tax use: −Schedule D Tax Worksheet or −Qualified Dividends & Capital Gains Tax Worksheet

16. Quality Review (QR) Form 8158 – Quality Review Checklist - Income Section

17. Lesson Summary Basis of investment property is cost −Adjusted basis is cost +/- adjustments such as commissions Holding period is classified as either –Short-term (one year or less) or –Long-term (more than one year)

18. Lesson Summary – cont’d Capital gain or loss is computed as: Amount Realized minus Adjusted Basis Capital Gains/Losses are reported on Schedule D, Form 1040 Net capital losses are deductible up to a yearly limitation, the lesser of: − the loss amount or − $3,000 ($1,500 if MFS)

19. Lesson Summary – cont’d Net capital gains are taxed at a lower, capital gains tax rates computed on −Schedule D Tax Worksheet, or −Qualified Dividends & Capital Gains Tax Worksheet Schedule D is not required if the taxpayer has only capital gain distributions from 1099-DIV to report