[jeff]

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Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[lab2008]

I have a question regarding the R4 Property Taxation for Individual gains and losses. I know that $3,000 Individual Capital Losses is allowed to offset income. In the below problem, more than $3,000 is allowed? Why?

An individual had the following capital gains and losses for the year:

Short-term capital loss $ 70,000

Long-term gain (unrecaptured Section 1250 at 25%) 56,000

Collectibles gain (28% rate) 10,000

Long-term gain (15% rate) 20,000

What will be the net gain (loss) reported by the individual and at what applicable tax rate(s)?

a.

Short-term loss of $3,000 at the ordinary rate, long-term capital gain of $10,000 at the 15% rate, collectibles gain of $10,000 at the 28% rate, and Section 1250 gain of $56,000 at the 25% rate.

b.

Long-term capital gain of $3,000 at the 15% rate, collectibles gain of $10,000 at the 28% rate, and Section 1250 gain of $56,000 at the 25% rate.

c.

Long-term gain of $16,000 at the 15% rate.

d.

Short-term loss of $3,000 at the ordinary rate and long-term capital gain of $86,000 at the 15% rate.

Explanation

Choice “c” is correct. Specific netting procedures for capital gains and losses are outlined in the Internal Revenue Code for non-corporate taxpayers. Gains and losses are netted within each tax rate group (e.g., the 15% rate group). The facts of this question have already performed this step for us.

Short-term Capital Gains and Losses

1.If there are any short-term capital losses (this includes any short-term capital loss carryovers), they are first offset against any short-term gains that would be taxable at the ordinary income rates.

2.Any remaining short-term capital loss is used to offset any long-term capital gains from the 28% rate group (e.g., collectibles).

3.Any remaining short-term capital loss is then used to offset any long-term gains from the 25% group (e.g., un-recaptured Section 1250 gains).

4.Any remaining short-term capital loss is used to offset any long-term capital gains applicable at the lower (e.g., 15%) tax rate.

Long-term Capital Gains and Losses

1.If there are any long-term capital losses (this includes any long-term capital loss carryovers) from the 28% rate group, they are first offset against any net gains from the 25% rate group and then against net gains from the 15% rate group.

2.If there are any long-term capital losses (this includes any long-term capital loss carryovers) from the 15% rate group, they are offset first against any net gains from the 28% rate group and then against net gains from the 25% rate group.

In this case, we are given net short-term capital losses of $70,000 to start with. Following the rules above, this first goes to offset any short-term gains at the ordinary income rates, but there are none in the facts. So, the next step is to offset the losses against any 28% rate gain long-term capital gains. The facts provide that there is $10,000 in gains from collectibles (taxable at the 28% rate). The remaining short-term loss ($60,000) is next used to offset the long-term capital gains at the 25% rate. The facts give us un-recaptured Section 1250 gains of $56,000 (taxed at the 25% tax rate). The remaining short-term capital loss is $4,000 ($70,000 – $10,000 – $56,000 = $4,000). The balance of the short-term capital losses is finally used to offset any capital gains taxed at the 15% tax rate, which the facts give us as $20,000. Therefore, after the $4,000 remaining short-term capital loss is applied to offset the $20,000 long-term capital gain taxed at the 15% tax rate, there is an amount of $16,000 remaining of long-term capital gains to be taxed at the 15% tax rate.

Choices “d”, “b”, and “a” are incorrect, per the ordering rules discussed above.

3 out of 4 passed and sitting for FAR on May 31. Will lose credit for Audit if I don't pass FAR by Aug 4. I love leases and bonds.

[funtiks]

In the current year, Fitz, a single taxpayer, sustained a $48,000 loss on Code Sec. 1244 stock in JJJ Corp., a qualifying small business corporation, and a $20,000 loss on Code Sec. 1244 stock in MMM Corp., another qualifying small business corporation. What is the maximum amount of loss that Fitz can deduct for the current year?

a.

$68,000 capital loss.

b.

$50,000 ordinary loss and $18,000 capital loss.

c.

$18,000 ordinary loss and $50,000 capital loss.

d.

$50,000 capital loss.

Explanation

Choice “b” is correct. The stock in each corporation is a capital asset. The general rule is that a loss on the sale or exchange of a capital asset will be a capital loss (either a short-term capital loss or a long-term capital loss, depending upon the holding period). However, a special rule applies to “section 1244 small business stock.” When a corporation's stock is sold or becomes worthless, an original stockholder can be treated as having an ordinary loss (fully deductible), instead of a capital loss, up to $50,000 ($100,000 if married filing jointly) for the year. Any loss(es) in excess of this amount is (are) a capital loss.

In this question, the taxpayer, who is not married, during the year has $68,000 of losses from the sale of section 1244 small business stock. As such, the taxpayer will treat as an ordinary loss $50,000 of the total loss; the taxpayer will treat as a capital loss the remaining $18,000 of the total loss.

Choices “d”, “a”, and “c” are incorrect per the above rule.

How the hell is it B?

questions asks what is maximum amount of loss that can be deducted this year? 50k ordinary and 3k capital!!!!

why is it 18k?

FAR - 76*, 73, 85
BEC - 69, 72, 78*, 80
AUD - 72, 71, 90
REG - 71, 74, 85

AFTER 3 YEARS I'M DONE!!!

[Gabe]

@funtiks- thanks for the explanation above. Can you direct me to where it states if it's above 50k, you subtract the remaining? To your post- agreed. However, I think the question is testing that you know the 50k is ordinary and the rest is capital. Technically, it should say 50k ordinary, 3k capital and CF the rest.

CPA, CFE
CISA- Experience will be completed by August 2016

[funtiks]

https://i.imgur.com/Dsn9TO3.png

FAR - 76*, 73, 85
BEC - 69, 72, 78*, 80
AUD - 72, 71, 90
REG - 71, 74, 85

AFTER 3 YEARS I'M DONE!!!

[Gabe]

@futniks thanks…so many rules.

CPA, CFE
CISA- Experience will be completed by August 2016

[pnielsen1982]

For those of you that are studying for REG again, are you re-writing your notes? I'm finding it very difficult to bring myself to re-write 55 pages of notes I already know I've written, so just wondering how others are approaching this.

CA licensed CPA

AUD - 08/31/13 - 84
BEC - 11/26/13 - 84
FAR - 08/10/14 - 85
REG - 11/30/14 - 72, 02/20/15 - 87

What have I gotten myself into?

[Tncincy]

@ pnielsen1982, I am rewriting my notes again because for me it helps the information to stick a little longer. I started the process again 110%. I am not short cutting but adding extra study time to make sure this time I pass. I'm not taking anything for granted. I am also going to purchase the mcq's after I finish reading. I am heavily focusing on tax, but will be thorough with everything if that makes sense.

It begins with a 75
Been here too long as a cheerleader....ready to pass

[lab2008]

@funtiks

I asked the exact same question about 1244. What confused me about the question was I thought “worthless stock” equal section 1244. However, there are other requirements so the worthless stock is not 1244, only the amount that says “1244.” The 1244 stock is ordinary. The worthless stock is capital. See below.

Yes, there are 2 worthless stocks here. But they are not both 1244. they tell us the 10,000 is 1244 stock, which means it meets the requirements on page R3-47.

The 5000 is just a regular worthless stock. This is capital because there is no indication that the requirements of 1244 stock are met. The general rule is that all stock transactions, including worthless stock, are capita unless specifically designated as ordinary.

I hope this helps.

3 out of 4 passed and sitting for FAR on May 31. Will lose credit for Audit if I don't pass FAR by Aug 4. I love leases and bonds.

[NJPRU]

Quick question about AMT –

If Medical Expenses about the 10% AGI threshold are allowed as an itemized deduction for AMT purposes (correct me if I'm wrong, but I would assume this would mean that everything below 10% is added back and not allowed – as it's an itemized deduction for regular tax purposes).. then..

why wouldn't anything above the 2% threshold for miscellaneous items be allowed to be added back (as everything qualified for the 2% is added back as they are deductible for regular tax purposes)?

I that question made sense lol

AUD: DONE
FAR: DONE
BEC: DONE
REG: DONE

IM GOING TO BE A CPA!!!!!

[funtiks]

i dont know if im going to have time to do SIMS by exam date.

Should I skim over last blaw chapter and use that time to drill all the tax SIMS?

FAR - 76*, 73, 85
BEC - 69, 72, 78*, 80
AUD - 72, 71, 90
REG - 71, 74, 85

AFTER 3 YEARS I'M DONE!!!

[lab2008]

@NJPRU I think that 2% deductions are not allowed and medical deductions in excess of 10% are allowed. So starting from taxable income, you need to add back the 2% deductions you took and you don't have to add back the medical deductions (as long as you only took excess of 10% which is the current rule.) As far as why, who knows.

3 out of 4 passed and sitting for FAR on May 31. Will lose credit for Audit if I don't pass FAR by Aug 4. I love leases and bonds.

[lab2008]

I posted the full question above and no one responded, so I'm going to re-post an abbreviated version:

First capital losses offset capital gains, then individuals can use an additional $3,000 of capital losses to offset ordinary income. My other question would be, how do I know which of these 3 gains are capital below? Per the answer to the question, the full $70k capital loss can be used to offset and there is a remaining $16k LT Cap gain. How do they know these 3 gains are capital? Thanks.

Short-term capital loss $ 70,000

Long-term gain (unrecaptured Section 1250 at 25%) 56,000

Collectibles gain (28% rate) 10,000

Long-term gain (15% rate) 20,000

3 out of 4 passed and sitting for FAR on May 31. Will lose credit for Audit if I don't pass FAR by Aug 4. I love leases and bonds.

[terryharm]

Here is a good explanation for the earlier problem if over $the limit you amtz the whole amount… The only confusing thing here is that I thought the cap was $50 not $55..

Expenses of temporary directors $20,000

Fees paid to a state for incorporation 5,000

Accounting and legal fees incident to organization 35,000

---

Total $60,000

=======

Total organization expense is over $55,000, so the entire amount must be capitalized and amortized over 180 months.

$60,000 × (12 ÷ 180) = $4,000

For organizational expenditures incurred after October 22, 2004, taxpayers may deduct up to $5,000 in the taxable year in which the business begins. The $5,000 amount is reduced by the amount by which the cumulative cost of organizational expenditures exceeds $50,000. Any remaining organizational expenditures not deducted are amortized over a 15-year period.

IRC Section 248(a)

BEC: 81
FAR: 75
AUD: 81
REG: 85

PA license Pending..

[pnielsen1982]

@terryharm – the way it works is this: you can deduct $5,000 of the cost in the first year, but the deduction phases out dollar-for-dollar above $50,000. So, when you reach $55,000, the deduction is entirely phased out and therefore the entire amount must be amortized over 180 months, like in your example.

If you change the example you gave to be $52,000 total expense (instead of $60,000), you would deduct $3,000 (the $5,000 allowed deduction reduced by the $2,000 your expense exceeds $50,000) the first year and then amortize the remaining $49,000 over 180 months. So for the first year, you'd have $3,000 of deduction and $3,267 of amortization.

Hope that helps!

@tncincy – thanks for your response. I should probably go through and do it all again also…. I just have to keep reminding myself this shit could be over in 3-4 weeks if I just buckle down and study my ass off.

CA licensed CPA

AUD - 08/31/13 - 84
BEC - 11/26/13 - 84
FAR - 08/10/14 - 85
REG - 11/30/14 - 72, 02/20/15 - 87

What have I gotten myself into?

[blueberrycpa]

Under the gift tax calculation should political contributions be deducted from gross gifts? As per ninja notes political contributions are deducted from gross gifts and gleim says that contributions to a political party are *not* tax-deductible. Also, political contributions are not considered gifts. whats the answer? Please help.

FAR- TBD
BEC - 75
REG - 76
AUD- TBD

[Author]

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