1. EKS Advanced Training Pilot1 CAPITAL GAINS/LOSSES Pub 4491- Lesson 10 Pub 4012- Tab 2 Form 1040- Line 13 Pub 17- Chapters 13-16

2. EKS Advanced Training Pilot2 SALE OF ASSETS Key elements of sale: –When did you buy it? –When did you sell it? –What is the cost basis? –What is the sales price?

3. EKS Advanced Training Pilot3 COST BASIS OF PROPERTY Cost basis Adjusted basis Property received as a gift Stocks and bonds Mutual fund shares – average cost method in scope if computed by broker/mutual fund

4. EKS Advanced Training Pilot4 BASIS OF INHERITED PROPERTY From decedent who died prior to/after 2010, basis is generally –Fair Market Value (FMV) at time of death –Other alternate valuations out-of-scope From decedent who died in 2010 – only in-scope if basis provided by representative or trustee

5. EKS Advanced Training Pilot5 SALE OF PROPERTY Sales and trades How to figure gain or loss Holding period –Long term or short term –Property received as a gift –Inherited property (see following slide) –Stock dividends Wash sales: out-of-scope

6. EKS Advanced Training Pilot6 SALE OF INHERITED PROPERTY Decedent died prior to/after 2010 –Considered long-term no matter how long property actually held –In TaxWise, entered “INHERIT” for date acquired Decedent died in 2010 –Out-of-scope unless representative or trustee provides cost basis, gain or loss, and holding period

7. EKS Advanced Training Pilot7 1099-B REQUIREMENTS Brokers (payer) must report (1099-B) –cost or other basis –whether a gain or loss is short-term or long- term  Only if the securities sold were covered securities  Not required for noncovered securities

8. EKS Advanced Training Pilot8 NONCOVERED SECURITIES A security other than stock Stock purchased before 2011 Shares acquired before 2012 in a regulated investment company (e.g. mutual fund) for which the average basis method is available Stock acquired before 2012 in connection with a dividend reinvestment plan

9. EKS Advanced Training Pilot9 1099-B REPORTING We don’t decide what is covered or noncovered – the broker does it Client may receive form 1099-B or substitute, broker’s statement Follow the statement –Unless the client has information that the statement is incorrect or incomplete

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12. EKS Advanced Training Pilot12 REPORTING GAINS/LOSSES Sale of property bought at various times Sale expenses Short-term/long-term gains and losses Capital gain distributions Capital loss carryover  Be sure to print out Sch D, Wkt 2, for client

13. EKS Advanced Training Pilot13 SCH D & FORMS 8949 Schedule D has reporting lines consistent with Form 8949 TaxWise will create appropriate 8949s based on entry in the Capital Gain or Loss Transactions Worksheet (Cap Gain Wkt)

14. EKS Advanced Training Pilot14 SCH D & FORM 8949, cont’d Each 8949 generated has two pages, page 1 for short-term and page 2 for long-term Each 8949 reports one of the following types of sales by checking the appropriate code at the top of the form: –Box A – Basis reported to the IRS –Box B – Basis not reported to the IRS –Box C – Neither A nor B (no 1099-B)

15. EKS Advanced Training Pilot15 SCH D & FORM 8949, cont’d For each asset sold, the 1099-B will have an A/B/C designator A/B/C designators will be entered on the Cap Gain Wkt in the 1099 column Column (f) lists code for adjustments to gain or loss, exclusion of gain on main home, etc. - codes listed in 4012 Column (g) lists the amount of the adjustment referenced in column (f)

16. EKS Advanced Training Pilot16 FORM 8949 Form automatically populated by TaxWise from Cap Gain Wkt and transferred to Schedule D

17. EKS Advanced Training Pilot17 Capital Gain & Loss Wksht

18. EKS Advanced Training Pilot18 CAPITAL GAIN WORKSHEET TaxWise Capital Gain Wkt will: –Determine whether long/short term –Calculate taxable gain/loss –Carry data to Form 8949 and Sch D

19. EKS Advanced Training Pilot19 CAPITAL GAIN WORKSHEET TaxWise Sch D will –Calculate tax liability using capital gain worksheet, if applicable –Calculate capital loss carryover Check last-year’s return for carryover (in TW, carryforward data will fill in amount) and report on Sch D  May need to input state loss carryover

20. EKS Advanced Training Pilot20 MULTIPLE TRANSACTIONS (Form 8453) Instead of listing multiple transactions, enter summary(ies) on Cap Gain Wkt –By broker name –Enter summary or totals for each code: A- ST, B-ST, C-ST, A-LT, B-LT, C-LT –Enter appropriate ST or LT date for date acquired and date sold

21. EKS Advanced Training Pilot21 MULTIPLE TRANSACTIONS (Form 8453) Select Sch D –Check box at top that will be using Form 8453

22. EKS Advanced Training Pilot22 MULTIPLE TRANSACTIONS (Form 8453) Keep 2 copies of 8453 and 8949 Keep 2 copies of the broker statement Follow site instructions for processing of Form 8453 (w/ 8949 & broker statements), usually –1 st set to IRS Texas –2 nd set to SPEC

23. EKS Advanced Training Pilot23 TAX LIABILITY IF NET GAIN If net long-term and net short-term are both gains –Net long-term gains are taxed at capital gain rates –Net short-term gain are taxed at ordinary income rates If net long-term gain exceeds net short- term loss, net amount is taxed at capital gain rates

24. EKS Advanced Training Pilot24 TAX LIABILITY IF NET GAIN Qualified dividends are taxed as long- term capital gains –But are not offset by capital losses TaxWise does the calculation

25. EKS Advanced Training Pilot25 SCHEDULE K-1 CAPITAL GAINS OR LOSSES In TaxWise, enter directly on Sch D (do NOT fill out K-1) –Short term – Line 5 –Long term – Line 12 –Direct entry provides proper tax treatment of short or long term gains or losses

26. EKS Advanced Training Pilot26 SCHEDULE K-1 CAPITAL GAINS OR LOSSES

27. EKS Advanced Training Pilot27 CAPITAL GAINS QUIZ #1 The taxpayer paid $1,000 for 100 shares of XYZ stock What is his cost basis per share in XYZ?

28. EKS Advanced Training Pilot28 CAPITAL GAINS #1 ANSWER The taxpayer paid $1,000 for 100 shares of XYZ stock What is his cost basis per share in XYZ? $10 per share

29. EKS Advanced Training Pilot29 CAPITAL GAINS QUIZ #2 The same taxpayer, who paid $1,000 for 100 shares of XYZ stock, received a 2 for 1 stock split What is his adjusted basis per share in XYZ?

30. EKS Advanced Training Pilot30 CAPITAL GAINS #2 ANSWER The same taxpayer who paid $1,000 for 100 shares of XYZ stock received a 2 for 1 stock split What is his adjusted basis per share in XYZ? $5 per share

31. EKS Advanced Training Pilot31 CAPITAL GAINS QUIZ #3 The same taxpayer sells all 200 shares of XYZ stock receiving $7 per share minus a total commission of $15 What are the sales price (not reduced for commissions) and the basis that should be shown on the 1099-B?

32. EKS Advanced Training Pilot32 CAPITAL GAINS #3 ANSWER The same taxpayer sells all 200 shares of XYZ stock receiving $7 per share minus a total commission of $15 What are the sales price (not reduced for commissions) and the basis that should be shown on the 1099-B? $1,400 selling price $1,015 cost basis (gain is $385)

33. EKS Advanced Training Pilot33 CAPITAL GAINS QUIZ #4 The taxpayer sells all 200 shares of XYZ stock receiving $7 per share less a total commission of $15 If the 1099-B reports net proceeds, what will be the sales price and the basis?

34. EKS Advanced Training Pilot34 CAPITAL GAINS #4 ANSWER The taxpayer sells all 200 shares of XYZ stock receiving $7 per share less a total commission of $15. If the 1099-B reports net proceeds, what will be the sales price and the basis? $1,385 selling price $1,000 basis (gain is still $385)

35. EKS Advanced Training Pilot35 SALE OF HOME Main home –Ownership and use tests –May be nontraditional home Figuring gain or loss –Amount realized (on sale) –Determining (cost) basis –Maximum exclusion

36. EKS Advanced Training Pilot36 SALE OF HOME QUIZ John purchased a condo in 2003 and lived in it until 2009 Jane was divorced in 2005 and has lived in her home since then John and Jane married in 2009 and began living together in her home John sold his condo in 2011 for a $300,000 gain Does John qualify to exclude the gain if MFJ?

37. EKS Advanced Training Pilot37 SALE OF HOME QUIZ ANSWER  Does John qualify to exclude the gain if MFJ?  Ownership test - yes, owned since 2003  Use test – yes for John; but, was not Jane’s main home for 2 years during 5 years preceding sale  So can exclude up to $250,000 only

38. EKS Advanced Training Pilot38 LET’S PRACTICE IN TAXWISE 4491-W Under direction of the instructor: –Open the return for Kent in TaxWise –From Pub 4491-W, enter stock sales for Kent, Advanced Comprehensive Problem C –Verify tax liability