Lesson 6, Topic 1
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Capital Gains and Loss Items (Optional: Advanced Certification)

Chris Test January 18, 2021
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Key Concepts

  • Basis and/or Adjusted Basis:
    • Basis is the original cost of the asset
    • Adjusted basis includes original cost plus any increases or decreases to that cost (such as commissions, fees, depreciation, deductible casualty losses, insurance reimbursements or major improvements)
    • Brokers must report cost or other basis on Form 1099-B, unless the securities sold were noncovered securities
    • Taxpayers must use codes to report if Form 1099-B was received and whether or not it showed basis reported to the IRS
  • Holding period:
    • Short-term property is held one year or less
    • Long-term property is held more than one year
    • –Long-term capital gains are taxed at a lower rate than short-term gains
    • Brokers must report whether the gain or loss is short-term or long-term on Form 1099-B, unless the
    • securities sold were noncovered securities
  • Proceeds from the sale:
    • Form 1099-B reflects gross or net proceeds for a stock or mutual fund
    • Form 1099-S usually reflects gross proceeds of real estate transactions

Capital Loss Carry Over

The net allowable capital loss per year is referred to as the “deduction limit.” A taxpayer’s deduction limit
cannot be more than $3,000 ($1,500 for married taxpayers filing separately) in figuring taxable income for
any single tax year. Any prior year carryover losses are combined with the capital gains and losses in future
years. Unused capital losses can be carried over to later years until they are completely used up.