Posts Tagged ‘capital gains & losses’

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Are You Planning To Sell or Buy A Home???

Thursday, June 10th, 2021

The exclusive purpose for the information which is provided from this website is to disseminate information, and not to provide tax advice. 

In the past several months the prices for new or existing homes has increased non-linearly!  It seems as if everyone wants to take advantage of the situation.  You have probably already read or heard about others who have been caught unprepared.  They sold their existing home the same day that it came on the real estate market for more than the “Listed Price”, but they were unable to find a new home in their price range.  Now they’re “Renters” for an unplanned period of time.

In my opinion, a home provides three benefits to the owners – 1) an “investment” with tax advantages for mortgage interest & property taxes, 2) a place to live and enjoy for the owners, and 3) a place to enjoy and share great times with friends, family, business associates, etc.

In many or most cases, IF you meet the Federal requirements below, you can exclude up to $500,000 in the taxation of capital gains when you sell your home.  This is for married couples who file a joint income tax return.  Single taxpayers and married filing separately can exclude up to $250,000.  Accurate, written records are absolutely essential.

The formula to be used for reporting the sale in Schedule D (Capital Gains & Losses) of your tax return is:  Original Purchase Price + All Capital Improvements While You Owned The Home = Your Cost Basis.  Then the Selling Price Less your Cost Basis Less the Selling Costs = Your Capital Gain.  Keep all written records especially the Housing and Urban Development HUD-1 form. Capital Gains, if any, are taxable.  Capital Losses are not deductible, but they are reportable.

Contact either the title firm or the law firm that conducted the sale of your home.  Ask if you will receive a Federal Form 1099 S. (About Form 1099-S, Proceeds from Real Estate Transactions | Internal Revenue Service (irs.gov) ).  The financial information in your Schedule D must agree with the financial data in this form that has already been reported to the Internal Revenue Service!

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Capital Gains and Losses

Thursday, March 6th, 2014

The exclusive purpose for the information which is provided from this website is to disseminate information, and not to provide tax advice. 

Ten Facts about Capital Gains and Losses

 

When you sell a ’capital asset,’ the sale usually results in a capital gain or loss. A ‘capital asset’ includes most property you own and use for personal or investment purposes. Here are 10 facts from the IRS on capital gains and losses:

1.   Capital assets include property such as your home or car. They also include investment property such as stocks and bonds.

2.   A capital gain or loss is the difference between your basis and the amount you get when you sell an asset. Your basis is usually what you paid for the asset.

3.   You must include all capital gains in your income. Beginning in 2013, you may be subject to the Net Investment Income Tax. The NIIT applies at a rate of 3.8% to certain net investment income of individuals, estates, and trusts that have income above statutory threshold amounts. For details see IRS.gov/aca.

4.   You can deduct capital losses on the sale of investment property. You can’t deduct losses on the sale of personal-use property.

5.   Capital gains and losses are either long-term or short-term, depending on how long you held the property. If you held the property for more than one year, your gain or loss is long-term. If you held it one year or less, the gain or loss is short-term.

6.   If your long-term gains are more than your long-term losses, the difference between the two is a net long-term capital gain. If your net long-term capital gain is more than your net short-term capital loss, you have a ‘net capital gain.’ 

7.   The tax rates that apply to net capital gains will usually depend on your income. For lower-income individuals, the rate may be zero percent on some or all of their net capital gains. In 2013, the maximum net capital gain tax rate increased from 15 to 20 percent. A 25 or 28 percent tax rate can also apply to special types of net capital gains.  

8.   If your capital losses are more than your capital gains, you can deduct the difference as a loss on your tax return. This loss is limited to $3,000 per year, or $1,500 if you are married and file a separate return.

9.   If your total net capital loss is more than the limit you can deduct, you can carry over the losses you are not able to deduct to next year’s tax return. You will treat those losses as if they happened that year.

10.   You must file Form 8949, Sales and Other Dispositions of Capital Assets, with your federal tax return to report your gains and losses. You also need to file Schedule D, Capital Gains and Losses with your return.

For more information about this topic, see the Schedule D instructions and Publication 550, Investment Income and Expenses. They’re both available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Additional IRS Resources:

 

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New Reporting Requirements for Investment and Security Transactions (Schedule D and Form 8949)

Thursday, February 9th, 2012

The exclusive purpose for the information which is provided from this website is to disseminate information, and not to provide tax advice.

Insofar as security transaction reporting is concerned, a significant change to the tax laws occurred in 2011.   The IRS has added a new Form 8949 for taxpayers to report capital gain and loss transactions.   Schedule D is used as a summary sheet and to compute the capital gains tax.   For securities that are purchased beginning in 2011, financial institutions must now report the taxpayer’s cost basis on Form 1099-B. 

In a nutshell, what this means is that your investment or brokerage firm has already submitted the 1099-B to the IRS before you file your income tax return and all of the data will be compared to the information which you have entered in to your tax return.  If there are errors, mistakes, omitted information, etc you will probably begin receiving correspondence from the Internal Revenue Service requesting that you provide an explanation for the variances.  Additionally, brokerage firms do make errors.  Review the data in the 1099-B as soon as you receive it and notify your brokerage firm immediately.  Meet with your broker, resolve the discrepancies, request a corrected 1099-B (if appropriate) and incorporate the correct data in to your tax return.  If necessary, file an amended tax return.

If you received a 1099-B from your investment firm or brokerage and BEFORE you make any “Capital Gain or Loss” entries in your tax return:

1.   Familiarize yourself with the new Federal Form 8949 (http://www.irs.gov/pub/irs-pdf/f8949.pdf ) and then

2.  Read the fourteen pages of  instructions  for Form 8949 ( http://www.irs.gov/pub/irs-pdf/i1040sd.pdf )

Here is a summary of the reporting changes and requirements from the IRS website (http://www.irs.gov/instructions/i1040sd/ar01.html ):

“What’s New

The IRS has created a page on IRS.gov for information about Form 8949 and Schedule D at www.irs.gov/form8949. Information about any tax law changes or other new developments affecting Schedule D or Form 8949 will be posted on that page.

Form 8949.  Form 8949 is new. Many transactions that, in previous years, would have been reported on Schedule D or D-1 must be reported on Form 8949 if they occur in 2011. Complete all necessary pages of Form 8949 before completing line 1, 2, 3, 8, 9, or 10 of Schedule D. Instructions for how to complete Form 8949 are included in these instructions.

 Basis on Form 1099-B.  If you sold a covered security in 2011, your broker will send you a Form 1099-B (or substitute statement) that shows your basis. This will help you complete Form 8949. Generally, a covered security is a security you acquired after 2010, with certain exceptions explained in the instructions for Form 8949, column (f). 

 Adjustments to gain or loss on Form 8949.  In certain situations, you must put a code in column (b) of Form 8949 and report an adjustment to your gain or loss in column (g). See the instructions for Form 8949, columns (b) and (g).

 Short sales.  Some instructions for reporting short sales have changed. See the instructions for Form 8949, columns (c) and (d).

 Schedule D-1.   For 2011 transactions, Schedule D-1 is no longer in use.  Form 8949 replaces it.”

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