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OLT TAX CORNER ~ Capital Gain/Loss & Sale of a Home
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 How do I know what a capital gain is? |
| Capital or Ordinary Gain or Loss |
| If you have a taxable gain or a deductible loss from a transaction, it may be either a capital gain or loss or an ordinary gain or loss, depending on the circumstances. Generally, a sale or trade of a capital asset (defined next) results in a capital gain or loss. A sale or trade of a noncapital asset generally results in ordinary gain or loss. Depending on the circumstances, a gain or loss on a sale or trade of property used in a trade or business may be treated as either capital or ordinary, as explained in Publication 544. In some situations, part of your gain or loss may be a capital gain or loss, and part may be an ordinary gain or loss. |
| Capital Assets and Noncapital Assets |
| For the most part, everything you own and use for personal purposes, pleasure, or investment is a capital asset. Some examples are: |
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| Any property you own is a capital asset, except the following noncapital assets: |
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| I sold stock this year, where do I put that information? |
| The sale of stock is classified under Capital Gains, Losses/Sale of Home. In order to report the sale of stock you must complete Schedule D and Form 8949. |
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| I bought stock this year. Do I need to report it on my taxes? |
| No, the purchasing of stock does not need to be reported on your taxes. However, the cost basis of the stock is information that you will want to keep for when you sell the stock. When you decid to sell the stock, you will need to report that on your taxes. |
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| If I anticipate a sizable capital gain on the sale of an investment during the year, do I need to make a quarterly estimated tax payment during the tax year? |
| If you first receive income subject to estimated tax during a period other than the first quarter, you must make your first payment by the due date for the period the income is received. You can pay your entire estimated tax by the due date for the period the income is received, or you can pay it in installments by the due date for that period and the due dates for the remaining periods. |
| If you are making estimated tax payments, you can increase your quarterly estimated tax payments or increase your Federal income tax withholding to cover the tax liability. If you have the proper amount withheld, you may not be required to make estimated tax payments nor have to file Form 2210, Underpayment of Estimated Tax by Individuals, Estates and Trusts, with your tax return (as you would if you just increased the remaining estimated tax payments). If you wait and make increased estimated tax payments in the later quarters, you would have to file Form 2210 with your tax return because it is not known when you received the income. Since you really did not receive the income evenly throughout the year, you have to tell us when the income was received by filing Form 2210. |
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| I own stock that became worthless last year. Can I take a bad debt deduction on my tax return? |
| If you own securities and they become totally worthless, you can take a deduction for a loss, but not for a bad debt. |
| The worthless securities are treated as though they were capital assets sold on the last day of the tax year if they were capital assets in your hands. Report worthless securities on line 1 or line 8 of Schedule D, whichever applies. In columns (c) and (d), write "Worthless." For additional information, refer to IRS Publication 550, Investment Income and Expenses (Including Capital Gains and Losses). For more information on bad debts, refer to IRS Tax Topic 453, Bad Debt Deduction. |
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