1. Part 1
Individuals

2. Two Cardinal Rules in Studying for the Enrolled Agents Exam
Rule 1 – There are absolutely NO shortcuts in studying for the EA Exam
Rule 2 – Refer to Rule 1

3. Pyramid Approach to Studying
Final Review Cards
PowerPoint Webinar Presentation
NSA EA Exam Review Course
IRS Publications

4. 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

5. Netting of Individuals
Topic 30
Capital Gain & Loss
Netting of Individuals

6. *30A 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 1-8
Question 99

7. Figure 1-8
2010
2011
2012
2013
2014
Transactionsrrent-Year Capital Transactions (Before c/o):
ST Gain
$16,000
$18,000
$ 3,000
$ 2,000
$ 9,000
ST Loss
(18,000)
(26,000)
( 2,000)
( 6,000)
( 1,000)
LT Gain
24,000
2,000
8,000
4,000
LT Loss
(12,000)
( 8,000)
Net Result:
Net ST
( 3,000)
( 4,000)
7,000
Net LT
12,000
1,000
6,000
Adjusted Gross Income:
Salary
$70,000
Capital
10,000*
3,000*
5,000
AGI
$80,000
$67,000
$73,000
$75,000
Capital Loss Carryovers (c/o):
ST Loss c/o
LT Loss c/o
* Qualifies for 15% maximum rate

8. Question 99 During 2014, George sold the following shares of stock:
Stock Purchased Basis Sold Proceeds
V Corp. 5/18/ $ /3/ $1,000
Q Corp. 8/16/ $3, /6/ $2,500
A Corp. 2/14/ $1, /9/ $ 600
J Corp. 3/27/ $2, /2/ $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

9. 30B 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 gain” on realty
28% - For collectibles, Sec stock gain, & all c/o
Step Netting Process – Four columns for 4 rates:
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

10. Figure 1-10 All 28% 25% 15% Short-Term Long-Term* Long-Term Long-Term
(4,000) (5,000) ,000 (10,000)
9, , , (9,000) , ,             (3,000)                          
(4,000) , ,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

11. 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

12. *30C Tax Treatment of Net Capital Losses [R]
$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

13. Question 101
During the current year, Nancy had the following transactions:
Short-term capital loss $(2,400)
Short-term capital gain ,000
Short-term capital loss carryover from (1,400)
Long-term capital gain ,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 $ $6,000 long-term
b $3, $3,000 long-term
c $6, $-0-
d $3, $3,000 short-term

14. Question 102
Bob sold securities in 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 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