Income Capital Gain or Loss; Form 1040, Line 13

Income Capital Gain or Loss; Form 1040, Line 13

Objectives Capital Gain or Loss Determine if the asset s holding period is long-term or short-term Calculate the taxable gain or deductible loss from the sale of capital assets Determine whether a home is the taxpayer s main home Determine if a taxpayer meets the ownership and use tests Income Capital Gain or Loss; Form 1040, Line 13 2

Capital Gain or Loss Definitions Capital gain (or loss) = Proceeds Basis Proceeds = sales price sales commissions Basis = purchase price + purchase commissions Holding period = Time from purchase of asset to sale Short term = less than or equal to 1 year Long term = greater than 1 year Covered/not covered Covered = proceeds and basis are reported to IRS Not covered = proceeds only are reported to IRS 3 rd possibility = no 1099-B for transaction (neither proceeds nor basis are reported to IRS) 3

Proceeds from the Sale Brokers report information about sale of stock on Form 1099-B Entries in boxes 8 through 13 are out of scope Unless securities sold were noncovered securities, brokers must report: Cost or other basis Whether gain/loss is short-term or long-term Income Capital Gain or Loss; Form 1040, Line 13 4

1099-B 5

Basis of Stock If Form 1099-B does not provide the basis, taxpayers must provide this information. If taxpayers received property as a gift or inheritance, and do not know the basis and holding period, refer them to a professional tax preparer. Income Capital Gain or Loss; Form 1040, Line 13 6

1099-B on Summary Statement from Broker 7

Six possible combinations of holding and reporting Short term, covered Short term, not covered Short term, no 1099-B Long term, covered Long term, not covered Long term, no 1099-B 8

Capital Gains Reporting 1099-B 1099-B 1099-B 8949 LONG TERM, COVERED 8949 SHORT TERM, COVERED SCH D 1040 1099-B 1099-B 8949 LONG TERM, NOT COVERED TaxSlayer 9

TaxSlayer Capital Gains Reporting (4012 D-22 to D-27) 10

TaxSlayer Capital Gains Reporting (4012 D-22 to D-27) 11

TaxSlayer Capital Gains Reporting (4012 D-22 to D-27) 12

TaxSlayer Capital Gains Reporting (4012 D-22 to D-27) 13

TaxSlayer Capital Gains Reporting (4012 D-22 to D-27) 14

Capital Gains Adjustments (4012 D-26 to D-27) 15

TaxSlayer Capital Gains Reporting (4012 D-22 to D-27) 16

Capital Loss Carryovers $3000 ($1,500 for Married Filing Separately) is the maximum net capital loss a taxpayer can take in a single year? Unused losses can be carried over to later years until gone Previous year return is needed to figure capital loss carryover. If the loss is over the limit, the tax software reports the maximum allowable deduction. The remainder can be carried over. Income Capital Gain or Loss; Form 1040, Line 13 17

TaxSlayer Capital Loss Carryover (4012 D-22) Federal Section > Income > Capital Gain and Losses 18

TaxSlayer Capital Loss Carryover (4012 D-22) 19

Sale of Main Home (4012 D-28 to D-32) Taxpayers may be able to exclude from taxable income the gain from sale of a main home. Up to a maximum of $250,000 ($500,0000 for Married Filing Jointly) Volunteers need to confirm the home sold was the taxpayer s main home, and the taxpayer meets the ownership and use tests. For help in making this determination, see Pub 17 or Pub 523. Income Capital Gain or Loss; Form 1040, Line 13 20

Ownership and Use Tests (4012 D-28) During the five-year period ending on the date of the sale, the taxpayer must have: Owned the home for at least two years (the ownership test), and Lived in the home as his or her main home for at least two years (the use test) In addition, during the two-year period ending on the date of the sale, the taxpayer must not have claimed an exclusion on a gain from the sale of another home. Income Capital Gain or Loss; Form 1040, Line 13 21

Gain on Sale of Home (4012 D-28 to D-32) Figuring the gain or loss on the sale of a home is based on: Selling price Amount realized Basis Adjusted basis See the worksheet examples in Pub 523 Adjusted Basis of Home Sold Remember loss on the sale of a personal residence is not deductible. Income Capital Gain or Loss; Form 1040, Line 13 22

Reporting Gain from the Sale of Home Gain must be reported when Amount is greater than the allowed exclusion Home is not the taxpayer s main home If taxpayer received Form 1099-S for their gain or loss on the sale of a main home, it must be reported on Form 8949 and Schedule D Income Capital Gain or Loss; Form 1040, Line 13 23

5-Year Test Period Suspension 5-Year ownership and use period may be suspended during any period of qualified official extended duty for a taxpayer who is: Member of uniformed services or Foreign Service of the U.S. Intelligence community employee Employee or volunteer of the Peace Corps Qualified official extended duty: Serve at a duty station at least 50 miles from their main home, or Live in government quarters under government order Called to active duty for more than 90 days or an indefinite period Income Capital Gain or Loss; Form 1040, Line 13 24

Out of Scope for this Lesson: Taxpayers who have sold any assets other than stock, mutual funds, or a personal residence Taxpayers who trade in options, futures, or other commodities, whether or not they bought or sold Determination of basis issues: Basis of any asset acquired other than by purchase or inheritance, such as a gift or employee stock option, unless the taxpayer provides the basis and holding period Basis of inherited property determined by method other than the fair market value (FMV) of the property on the date of the decedent's death, unless the taxpayer provides the basis and holding period Like-kind exchanges and worthless securities Form 1099-B, boxes on Bartering: Profit or (loss) realized on closed contracts; Unrealized profit (loss) on open contracts prior year; Unrealized profit or (loss) on open contracts current year; or Aggregate profit (loss) on contracts; Proceeds from collectibles; or FATCA filing requirement Income Capital Gain or Loss; Form 1040, Line 13 25

Out of Scope for this Lesson: Reduced exclusion computations/determinations in the sale of a home Married homeowners who do not meet all requirements to claim the maximum exclusion on sale of home Decreases to basis, including: Deductible casualty losses and gains a taxpayer postponed from the sale of a previous home before May 7, 1997 Depreciation during the time the home was used for business purposes or as rental property Taxpayers with nonqualified use issues Sale of a home used for business purposes or as rental property Income Capital Gain or Loss; Form 1040, Line 13 26

Summary Capital Gains and Losses In this lesson, you learned how to identify an asset s holding period, adjusted basis, net short-term and long-term capital gains or losses, the taxable gain or deductible loss, and the amount of capital loss carryover. Taxpayers must use Form 8949 and Schedule D to report capital gains and losses. Completion of Form 8949 and Schedule D requires information from Form 1099-B and Form 1099-DIV or a 1099 Consolidated Statement and from taxpayer records. Information from a taxpayer s prior year return is needed to compute a loss carryover amount. Income Capital Gain or Loss; Form 1040, Line 13 27

Summary Sale of a Main Home This lesson covered how to report the sale of a taxpayer s principal residence. To exclude gain from sale of a home : The home sold was taxpayer s main home (place the taxpayer lived most of the time) Owned the home for at least two years (the ownership test), and Lived in the home as their main home for at least two years (the use test) The required two years of ownership/use need not be continuous Taxpayer did not exclude gain in the two years before the current sale of the home 5-Year test period can be suspended for taxpayers serving on qualified official extended duty. Income Capital Gain or Loss; Form 1040, Line 13 28

Foreign Tax Credit and Schedule K-1

Foreign Tax Credit (4012 G-2) Taxpayers who receive form 1099-INT 1099-DIV or Sched K-1 may have amounts indicating that foriegn taxes have been paid. Taxpayers can elect to report foreign tax on Form 1040, page 2 without filing form 1116 when the following conditions are met: All of the foreign source income was from interest and dividends and all that income and foreign tax paid is reported on Form 1099-INT, 1099-DIV or Schedule K-1 If dividend income is from shares they must have been held for at least 15 days Not filing form 4563 (Samoa income) or excluding income from Puerto Rico Total of all foreign taxes is not more that $300 (or $600 if married filing jointly) Legally owed, paid to a country recognized by the United States, paid to a country that does not support terrorism 30

TaxSlayer Foreign Tax Credit (4012 G-1 & G-2) Federal Section > Deductions 31

TaxSlayer Foreign Tax Credit (4012 G-1 & G-2) 32

TaxSlayer Foreign Tax Credit (4012 G-1 & G-2) 33

Schedule K-1 (4012 D-47 to D-49) Reports taxpayer s share of income and other distributions, deductions, and credits from partnerships, S corporations, and some estates and trusts Limited Schedule K-1 income topics (and reporting forms) are in scope Interest income (Form 1040, line 8a, unless Schedule B is required) Dividend income (Form 1040, line 9a, unless Schedule B is required) Qualified Dividends income (1040, line 9b) Net short-term capital gains and losses (Schedule D, line 5) Net long-term capital gains and losses (Schedule D, line 12) Tax-exempt interest income (Form 1040, line 8b) Royalty income (Schedule E) only in scope if the source document is a Schedule K-1 or Form 1099-MISC, Box 2, Royalties, with no associated expenses Foreign tax paid Income Schedules K-1 and Rental 34

Schedule K-1 (4012 D-47 to D-49)... 35

Schedule K-1 (4012 D-47 to D-49) 36

Schedule K-1 (4012 D-47 to D-49) 37

Schedule K-1 (4012 D-47 to D-49) 38

Summary Foreign Tax Credit and Schedule K-1 In this lesson, you learned how volunteers with Advanced certification can claim a foreign tax credit for a client when the foreign tax paid is reported on a 1099-INT, 1099-DIV or Schedule K-1. Volunteers can report income from Schedule K-1 when the Sched K-1 contains only limited types of income: Interest income Dividend income Qualified Dividends income Net short-term capital gains and losses Net long-term capital gains and losses Tax-exempt interest income Royalty income Otherwise, return is out of scope. Income Capital Gain or Loss; Form 1040, Line 13 39