© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax.

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 4 Handout Part 2 Assume that on February 14 of the current year, a donee sold an investment property she had received as a gift on January 8. The donor had purchased the property on October 26, 1974. State the amount and class (ST or LT) of capital gain or loss realized.

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 5 Handout Part 2 Assume that on February 14 of the current year, a donee sold an investment property she had received as a gift on January 8. The donor had purchased the property on October 26, 1974. State the amount and class (ST or LT ) of capital gain or loss realized. Sales Pricexxxx Basisxxxx +Gift Tax xx xx Gain or (Loss)xxx

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 6 Handout Part 2 -- 1) Assume that on February 14 of the current year, a donee sold an investment property she had received as a gift on January 8. The donor had purchased the property on October 26, 1974. State the amount and class (ST or LT ) of capital gain or loss realized. Sales Price Basis11,000 +Gift Taxxxx Gain or (Loss) 13,000 1,950 5011,050

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 7 Handout Part 2 -- 1) Assume that on February 14 of the current year, a donee sold an investment property she had received as a gift on January 8. The donor had purchased the property on October 26, 1974. State the amount and class (ST or LT ) of capital gain or loss realized. Sales Price Basis11,000 +Gift Taxxxx Gain or (Loss) 13,000 1,950 5011,050 LT

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 8 Handout Part 2 -- 3) Assume that on February 14 of the current year, a donee sold an investment property she had received as a gift on January 8. The donor had purchased the property on October 26, 1974. State the amount and class (ST or LT ) of capital gain or loss realized. Sales Price Basis +Gift Tax Gain or (Loss)

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 9 Handout Part 2 -- 3) Assume that on February 14 of the current year, a donee sold an investment property she had received as a gift on January 8. The donor had purchased the property on October 26, 1974. State the amount and class (ST or LT ) of capital gain or loss realized. Sales Price9,000 Basis1?,000 +Gift Tax 0 Gain or (Loss)

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 10 Handout Part 2 -- 3) Assume that on February 14 of the current year, a donee sold an investment property she had received as a gift on January 8. The donor had purchased the property on October 26, 1974. State the amount and class (ST or LT ) of capital gain or loss realized. Sales Price9,000 Basis10,000 +Gift Tax 0 10,000 Gain or (Loss)

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 11 Handout Part 2 -- 3) Assume that on February 14 of the current year, a donee sold an investment property she had received as a gift on January 8. The donor had purchased the property on October 26, 1974. State the amount and class (ST or LT ) of capital gain or loss realized. Sales Price9,000 Basis10,000 +Gift Tax 0 10,000 Gain or (Loss)(1,000) ST or LT?

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 12 Handout Part 2 -- 3) Assume that on February 14 of the current year, a donee sold an investment property she had received as a gift on January 8. The donor had purchased the property on October 26, 1974. State the amount and class (ST or LT ) of capital gain or loss realized. 19741/82/14

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 13 Handout Part 2 -- 3) Assume that on February 14 of the current year, a donee sold an investment property she had received as a gift on January 8. The donor had purchased the property on October 26, 1974. State the amount and class (ST or LT ) of capital gain or loss realized. 19741/82/14 ABC

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 14 Handout Part 2 -- 3) Assume that on February 14 of the current year, a donee sold an investment property she had received as a gift on January 8. The donor had purchased the property on October 26, 1974. State the amount and class (ST or LT ) of capital gain or loss realized. 19741/82/14 ABC $11,000$10,000$9,000

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 15 Handout Part 2 -- 3) Assume that on February 14 of the current year, a donee sold an investment property she had received as a gift on January 8. The donor had purchased the property on October 26, 1974. State the amount and class (ST or LT ) of capital gain or loss realized. Sales Price9,000 Basis10,000 +Gift Tax010,000 Gain or (Loss)(1,000) ST or LT?

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 16 Handout Part 2 -- 3) Assume that on February 14 of the current year, a donee sold an investment property she had received as a gift on January 8. The donor had purchased the property on October 26, 1974. State the amount and class (ST or LT ) of capital gain or loss realized. Sales Price9,000 Basis10,000 +Gift Tax010,000 Gain or (Loss)(1,000) ST

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 17 Handout Part 2 -- 3) Assume that on February 14 of the current year, a donee sold an investment property she had received as a gift on January 8. The donor had purchased the property on October 26, 1974. State the amount and class (ST or LT ) of capital gain or loss realized. 19741/82/14 ABC $11,000$10,000$9,000

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 79 Problem 5-48, Situation 4 AGI ST LT $70,000 6,000 (15,000) 9,000 (4,000) (9,000) 5,000 $70,000 (4,000) $67,000AGI (after) (3,000) Carryover = ? ? ? ?

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 80 Problem 5-48, Situation 4 AGI ST LT $70,000 6,000 (15,000) 9,000 (4,000) (9,000) 5,000 $70,000 (4,000) $67,000AGI (after) (3,000) STCL Carryover = $1,000

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 81 Problem 5-48, Situation 4 AGI ST LT $70,000 6,000 (15,000) 9,000 (4,000) (9,000) 5,000 $70,000 (4,000) $67,000AGI (after) (3,000) STCL Carryover = $1,000 How long?

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 82 Problem 5-48, Situation 4 AGI ST LT $70,000 6,000 (15,000) 9,000 (4,000) (9,000) 5,000 $70,000 (4,000) $67,000AGI (after) (3,000) STCL Carryover = $1,000 Indefinitely

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 83 Problem 5-48, Situation 4 AGI ST LT $70,000 6,000 (15,000) 9,000 (4,000) (9,000) 5,000 $70,000 (4,000) $67,000AGI (after) (3,000) What if LTL were $16,000?

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 84 Problem 5-48, Situation 4 AGI ST LT $70,000 6,000 (15,000) 9,000 (16,000) (9,000) 5,000 $70,000 (4,000) $67,000AGI (after) (3,000) What if LTL were $16,000?

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 85 Problem 5-48, Situation 4 AGI ST LT $70,000 6,000 (15,000) 9,000 (16,000) (9,000) (7,000) $70,000 (4,000) $67,000AGI (after) (3,000) What if LTL were $16,000?

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 86 Problem 5-48, Situation 4 AGI ST LT $70,000 6,000 (15,000) 9,000 (16,000) (9,000) (7,000) $70,000 $67,000AGI (after) What if LTL were $16,000?

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 87 Problem 5-48, Situation 4 AGI ST LT $70,000 6,000 (15,000) 9,000 (16,000) (9,000) (7,000) $70,000 $67,000AGI (after) What if LTL were $16,000? (3,000)

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 88 Problem 5-48, Situation 4 AGI ST LT $70,000 6,000 (15,000) 9,000 (16,000) (9,000) (7,000) $70,000 $67,000AGI (after) Carryover(s)? (3,000)

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 89 Problem 5-48, Situation 4 AGI ST LT $70,000 6,000 (15,000) 9,000 (16,000) (9,000) (7,000) $70,000 $67,000AGI (after) Carryover(s)? $6,000 ST $7,000 LT (3,000)

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 92 Capital Assets Section 2619 Capital assets include all assets held by the taxpayer except: 1.Stock in trade of the taxpayer or other property of a kind that would properly be included in the inventory of the taxpayer if on hand at the close of the tax year. 2.Property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business. 3.Accounts or notes receivable acquired in the ordinary course of a trade or business for services rendered or from the sale of any properties described in 1. and 2. above. 4.Depreciable property used in the taxpayer's trade or business. 5.Real property used in the taxpayer's trade or business. 6.Certain copyrights, and literary, musical or artistic compositions 7.Letters, memoranda or similar property in the hands of the writer, donees of the writer and persons to whom they were sent or for whom they were produced. 8.U.S. government publications (Congressional Record) received from the government without charge or below the price sold to the public, in the hands of the recipient and carryover_basis transferees (Code Sec. 1221)

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 96 Determining the Basis of Assets Asset acquired by purchase? cost + capital improvements - accumulated depreciation = adjusted basis Federal gift tax paid (basis limited to FMV on date of gift) Fed. Gift tax x “net appreciation” 1 total value of prop. 2 donor’s adjusted basis (“date” basis = donor’s date) FMV on date of gift (“date” basis = date of gift) basis for donor’s adj. basis plus FMV > donor’s adjusted basis? All dispositions yield LONG TERM results FMV 6 months after date of death FMV on date of death alt. valuation date elected? Acquired by gift? Yes (after 3/1/13) Yes (after 1920) Yes before 1/1/77 gain Yes No (inheritance) No loss after 12/31/76 1 “net appreciation” = (FMV - donor’s adjusted basis) 2 FMV - annual exclusion

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 97 Determining the Basis of Assets Asset acquired by purchase? cost + capital improvements - accumulated depreciation = adjusted basis Federal gift tax paid (basis limited to FMV on date of gift) Fed. Gift tax x “net appreciation” 1 total value of prop. 2 donor’s adjusted basis (“date” basis = donor’s date) FMV on date of gift (“date” basis = date of gift) basis for donor’s adj. basis plus FMV > donor’s adjusted basis? All dispositions yield LONG TERM results FMV 6 months after date of death FMV on date of death alt. valuation date elected? Acquired by gift? Yes (after 3/1/13) Yes (after 1920) Yes before 1/1/77 gain Yes No (inheritance) No loss after 12/31/76 1 “net appreciation” = (FMV - donor’s adjusted basis) 2 FMV - annual exclusion

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 98 Allocate PDP Points By Friday afternoon On one set of sheets ONLY Allocate ALL points –Especially if there are UNUSED points –Initial near unused points Important!

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 103 Problem 5-61 Painting $2,000 - $50 = $1,950 Ordinary Income Stock $28,500 - $30,000 = ($1,500) LT Land $25,000 - $30,000 = ($5,000) ST a. NSTCL a.

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 104 Problem 5-61 Painting $2,000 - $50 = $1,950 Ordinary Income Stock $28,500 - $30,000 = ($1,500) LT Land $25,000 - $30,000 = ($5,000) ST b. NLTCL b.

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 109 Rates of Tax “simplified” version 28%collectibles 25%unrecaptured Sec. 1250 gain 20%max for ANCG after 5/6/97 18%after 12/31/00 if held > 5 years 10%if regular rate is 15% 8%after 12/31/00 if held > 5 years *

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 115 Rates of Tax “simplified” version 28%collectibles 25%unrecaptured Sec. 1250 gain 15% max for ANCG after 5/2003 18%after 12/31/00 if held > 5 years 10%if regular rate is 15% 8%after 12/31/00 if held > 5 years *

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 116 Rates of Tax “simplified” version 28%collectibles 25%unrecaptured Sec. 1250 gain 15% max for ANCG after 5/2003 18%after 12/31/00 if held > 5 years 5% if regular rate is 10% or 15% 8%after 12/31/00 if held > 5 years *

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 117 Rates of Tax “simplified” version 28%collectibles 25%unrecaptured Sec. 1250 gain 15% max for ANCG after 5/2003 18%after 12/31/00 if held > 5 years 5% if regular rate is 10% or 15% 8%after 12/31/00 if held > 5 years * repealed

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 118 Rates of Tax “simplified” version 28%collectibles, and Sec. 1202 stock 25%unrecaptured Sec. 1250 gain 15%max for ANCG after 5/2003 18%after 12/31/00 if held > 5 years 5%if regular rate is 10% or 15% 8%after 12/31/00 if held > 5 years *

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 119 Rates of Tax Problem 5-43 A gain from stock held 7 months 28% B gain from antique clock held 6 yrs 28% C gain from stock held 3 years 20%

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 120 Rates of Tax Problem 5-43 A gain from stock held 7 months 33% 1 B gain from antique clock held 6 yrs 28% C gain from stock held 3 years 20% 1 TP’s regular marginal rate

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 121 Rates of Tax Problem 5-43 A gain from stock held 7 months 33% B gain from antique clock held 6 yrs 28% C gain from stock held 3 years 20% “Collectibles”

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 122 Rates of Tax Problem 5-43 A gain from stock held 7 months 33% B gain from antique clock held 6 yrs 28% C gain from stock held 3 years 15% * LT capital gain rate

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 123 Rates of Tax Problem 5-43 A gain from stock held 7 months 33% B gain from antique clock held 6 yrs 28% C gain from stock held 3 years 15%* * FYI was 20% before ’03

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 126 Problem 5-49 -- 2011 AGI ST $50,000 5,000 (3,000) 1,000 (11,000) $50,000 (10,000) $47,000AGI (after) (3,000) LT 10,000 (21,000) ST (1,000) LT (7,000)

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 127 Problem 5-49 -- 2012 AGI ST $60,000 7,000 (5,000) 2,000 (5,800) $60,000 $57,000AGI (after) (3,000) LT 2,200 (1,000) LT (7,000)LT (800) (3,800)

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 128 Problem 5-49 -- 2013 AGI ST $70,000 10,000 (12,000) (2,000) (4,300) $70,000 $67,000AGI (after) (2,000) LT 6,000 (9,500) LT (800) (1,000) LT (3,300)

8 Finally, brothers [and sisters], whatever is true, whatever is noble, whatever is right, whatever is pure, whatever is lovely, whatever is admirable – if anything is excellent or praise-worthy – think about such things 9 Whatever you have learned or received or heard from me, or seen in me – put it into practice. And the God of peace will be with you. Philippians 4:8-9

© Copyright 2002-2013 by M. Ray Gregg. All rights reserved. 1 Federal Income Tax.

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