317: 7&8

On May 20, 2013, Jessica purchased land for $103,647 to use in her business. She sold it on May 21, 2014 for $100,595. What are the amount and type of loss on this sale if Jessica does not have any other sales from a trade or business?

. $3,052 ordinary loss Feedback: $103,647 basis - $100,595 sell price = $3,052 loss. Since this was land used in her business the loss is considered ordinary.

What is a capital asset? What factors affect the determination of whether an asset is classified as a capital asset?

A capital asset includes assets that are not classified as other types of property, and usually includes assets used for personal or investment purposes. The most obvious example of a capital asset is stocks or bonds. Examples of other capital assets include the taxpayer's primary residence, timber grown on home property, household furnishings, personal automobile, coin and stamp collections, and jewelry. Capital assets do not include stock in trade of the taxpayer (inventory), copyrights, accounts or notes receivables, and property subject to depreciation.

What is a capital gain distribution, and how is it taxed?

A capital gain distribution is a distribution of gains and losses to individual shareholders accumulated from mutual funds. The taxpayer reports the capital gain distribution (considered long-term) on Schedule D (any 28% gain will be shown on the mutual fund statement and is separately reported on Schedule D).

Which is true regarding long-term capital gains? a. A net long-term gain can offset a short-term gain but not a short-term loss. b. A net long-term gain can be taxed at 28%, 25%, 20%, 15% or 0%, depending on the type of gain generated. c. A net long-term loss can be offset against a long-term gain, and if there is a resulting long-term gain, it is taxed at regular rates. d. A long-term loss can offset a long-term gain only if the netting result produces a loss of more than $3,000.

A net long-term gain can be taxed at 28%, 25%, 20%, 15% or 0%, depending on the type of gain generated. Feedback: Depending on the tax bracket of the taxpayer, long-term gains can be taxed at a preferential rate of 0%, 15%, or 20%. The tax rate of 25% is for unrecaptured §1250 assets and the 28% is for §1202 assets and collectibles.

What is royalty income, and which forms are used to report it? What factors determine which forms should be used?

A royalty is a payment for the right to use intangible property. Royalties may be received from books, stories, plays, copyrights, trademarks, formulas, patents, and from the exploitation of natural resources such as coal, gas, or timber. When royalties are received, the payer is required to send the recipient a 1099-MISC. If the royalty is a result of a trade or business, the taxpayer should report the royalty on Schedule C. If the royalty income is produced by a non-trade or business activity (such as an investment) then the income should be reported on Schedule E.

What is a §1245 asset? How is it related to a §1231 asset?

A §1245 asset property is personal trade or business property subject to depreciation. It does not include land, buildings, and building structural components. A gain on the sale of a §1245 asset is ordinary to the extent of depreciation taken. Any gain in excess of depreciation taken is considered to be a §1231 gain and would potentially receive long-term capital gain treatment. This type of gain is unusual because equipment rarely appreciates, and any gain is usually caused by accelerated depreciation.

What is a §1250 asset? How is it related to a §1231 asset?

A §1250 asset is depreciable real property used in a trade of business that has never been considered §1245 asset property. It includes all buildings, residential and non-residential, used in a business or for the production of income. Since an ordinary expense deduction was allowed for depreciation on the asset, some or all of the gain from the sale should be treated as ordinary. Any gain in excess of this gain is considered a §1231 gain and may be taxed at the preferential rate. If there is a loss, the loss is always treated as an ordinary loss.

What is the difference between a deductible repair expense and a capital improvement of a rental property?

Allowable repairs are expenditures that neither materially add to the value of the property nor appreciably prolong the property's life. Any repairs in the nature of a replacement are capitalized and depreciated over the appropriate depreciable life. Repairs are allowed as an immediate expense deduction, but capital improvements are added to the value of the property and are depreciated over 27 ½ years (residential) or 39 years (non-residential).

In what ways can a capital asset be acquired, and how is the holding period determined for each method of acquisition?

Assets can be acquired by purchase, by gift, or through inheritance. For stocks, bonds, other property, and other nontaxable exchanges, the holding period starts the day after the taxpayer acquired the property. For a gift, if the taxpayer's basis is the donor's basis, the holding period includes the donor's period. If the taxpayer's basis is the FMV, the holding period starts the day after the date of the gift. Property acquired through inheritance is always considered to have been held longer than one year.

The tax treatment of a capital gain or loss varies depending on all of the following except: a. the holding period. b. the basis of the asset sold. c. the taxpayer's tax bracket. d. the netting of all gains and losses.

B

Why is the distinction between "ordinary" and "capital" so important?

Because of the preferential tax rate treatment on capital gains versus ordinary gains.

: Brady owns a rental property that he rents to his friend, Jack, for $800 per month. In November, Jack repairs a leaky roof of the rental property for $450 and pays Brady $350 for rent.

Brady would report $800 for rental income and $450 for repair and maintenance expenses in November

When we determine whether an asset is a §1231 asset, does the length of time the asset is held affect the classification? Explain.

By definition, IRC §1231 property is property, depreciable or nondepreciable, used in a trade or business and held for more than 1 year.

A capital asset includes all of the following except: a. taxpayer vacation home b. inherited property c. property used in a trade or business d. stock portfolio

C

What factors affect the taxability of capital gains and losses?

Capital gains are taxed at preferential rates and capital losses are limited as to their deductibility. The tax treatment of a capital gain or loss varies depending on several factors, including the holding period of the capital asset, whether the sale of the asset produced a gain or loss, the combination of capital gains and losses (a net capital gain or a net capital loss), the type of capital asset sold, and the taxpayer's tax bracket.

What are the different classifications of capital assets? List each classification and the rate at which the gains are taxed.

Collectibles 28% rate IRC §1202 Gain 28% rate Unrecaptured §1250 Gain 25% rate Other Capital Gains 0%, 15%, or 20% rate

What is meant by the term depreciation recapture?

Depreciation recapture rules transform some or all of a §1231 gain into an ordinary gain.

A gain or loss on a sale is the difference between the cash received and the original cost of the asset.

False

All expenses related to rental property are deductible in the current year, including capital improvements.

False

An ordinary income asset is any short-term or long-term asset used in a business.

False

If a taxpayer's rental property is considered a trade or a business, he or she reports the income on Schedule E.

False

If a tenant provides a service in lieu of rent, the taxpayer is not required to report the value of that amount as rental income.

False

Inventory sold by a company is an ordinary income asset that appears on Form 4797-Sale of Business Assets

False

Ordinary income from all flow-through entities is considered self-employment income

False

The 3.8% surtax is charged on long-term capital gains only if a taxpayer is in the top tax bracket. True or False?

False

The basis for property given as a gift is always the FMV of the property at the time of the gift.

False

The gain or loss on the sale of an asset used for investment or in a trade or business operation appears on Form 4797.

False

The holding period of inherited property can be either short-term or long-term to the beneficiary.

False

The tax treatment of a gain on the sale of inherited property depends on the holding period of the deceased taxpayer.

False

Under §1231, gains receive preferential tax rate treatment but losses are limited to $3,000 per year.

False

When an ordinary asset is sold, the gain or loss is subject to capital gain or loss tax treatment.

False

Explain the three types of methods used to determine the basis of units in a mutual fund.

First-In, First-Out - First shares purchased are the first shares sold. Specific Identification - Specifies exactly which units are for sale from the fund. Average Basis - Take total cost basis and divide by the total units to get an average cost per unit.

What is meant by the term flow-through entity? Give some examples.

Flow-through entities are given this name because they do not pay income taxes. Instead, the net share of income or loss from the entities flows-through to the tax returns of its partners/shareholders/owners. These parties then pay the tax on their share of the flow-through entity's income. Common flow-through entities are partnerships, S corporations, LLCs, estates, and trusts.

Why are charitable contributions stated separately on the K-1 but not deducted on a partnership return?

For most individual taxpayers, charitable deductions are limited to 50% of AGI. The limit occurs at the individual level and could result in a different outcome depending on the individual taxpayer's tax situation.

For rental expenses to be deductible, what criteria must be met? For this question, assume no personal use of the rental property.

Generally, the same rules apply for rental property as for business expenses - ordinary, necessary, and reasonable. Deductible expenses include advertising, depreciation, repair and maintenance, interest, taxes, management fees, and travel expenses. General repairs and maintenance are deductible from gross rental income. However, no deduction is allowed for amounts that are "capital improvements."

What is a §1202 gain, and how is it taxed?

IRC §1202 provides a provision to limit the taxation on a gain from the sale of "qualified small business stock." In the case of a taxpayer other than a corporation, gross income shall not include 75% of any gain from the sale or exchange of qualified small business stock held for more than 5 years if the stock was purchased after February 17, 2009 and before September 27, 2010 and 100% for stock purchased after September 27, 2010 and before January 02, 2012. This 100% exclusion has been extended to stock acquired before January 01, 2014 and held for 5 years. For qualified small business stock that was purchased before February 17, 2009, and held for longer than five years, 50% of any gain maybe excluded from taxable income. The remaining §1202 gain is taxed at the 28% capital gains rate.

What is a §1231 asset? How are gains and losses from the sale of §1231 assets treated? On what tax form are gains and losses from the sale of §1231 assets reported?

IRC §1231 property is depreciable and nondepreciable property (including real property) used in a trade or business and held for more than 1 year. Timber, coal, domestic iron ore and certain livestock held for breeding, dairy, or sporting purposes are also considered §1231 property. The most typical examples of §1231 assets are machinery and equipment, buildings, and land used in a business. When a §1231 asset is sold, the gain may be either ordinary or capital. These gains (and/or losses) on the sale are initially reported on Form 4797.

. Les's personal residence is in uptown New Orleans. Every year during Mardi Gras, Les rents his house for 10 days to a large corporation that uses it to entertain clients. How does Les treat the rental income? Explain.

If a residence is rented for less than 15 days, the property is considered "primarily personal" property. When property is rented for less than 15 days, none of the rental income derived is included in gross income, and no deduction is allowed for rental expenses, other than the mortgage interest and property taxes that is usually allowed as itemized deductions

Explain how gains (losses) from the sale of property acquired as a gift are taxed.

If the FMV at the date of the gift is more than the basis, use the basis to the donor to calculate the gain or loss on the sale. If the FMV at the date of the gift is less than the basis, use the basis to the donor to calculate the gain on the sale. Use the FMV to calculate the loss on the sale. If the sales price is between the FMV and the basis to the donor, there is no gain or loss.

Briefly describe the types of income that are reported on a Schedule E.

Income and expenses associated with rental, royalty, and flow-through entities are the types of items known as "for the production of income" property and are reported on Schedule E of Form 1040. Income and expenses from rentals and royalties are reported in Part I of Schedule E, and certain items from flow-through entities such as partnerships, LLCs, S corporations, and estates and trusts, are reported in Part II and Part III of Schedule E.

What determines whether land is a capital asset? How else can land be classified?

Land held for investment is a capital asset. However, if the land is used in a trade or business, it is not a capital asset but a §1231 asset. If the land is held for resale by a real estate developer, it is treated as inventory (an ordinary asset).

How is a net capital loss treated? Include in your answer a discussion of how a net capital loss is treated in relation to other income.

Long-term capital losses must be netted with long-term capital gains. Short-term capital losses must be netted with short-term capital gains. Then the two figures must be netted together. Any remaining capital loss reduces ordinary income by a maximum of $3,000 per year for individual taxpayers. Any excess may be carried forward indefinitely to offset gains.

Capital gains can be taxed at several different rates. What determines the rate?

Net long-term capital gains can be taxed at a 0%, 15%, 20%, 25%, or 28% rate. Except for "unrecaptured" §1250 gains and "collectibles gains" (see below), long-term capital gains are taxed at either 0% or 15%. The determination of the percentage is based on the taxpayer's taxable income and corresponding tax bracket. The 25% rate relates to "unrecaptured" capital gains from depreciable real property (buildings) used in a trade or business. The 28% capital gain rate applies to "collectibles gains" and §1202 gains.

. Ramone is a tax attorney and he also owns an office building that he rents for $8,500/month. He is responsible for paying all taxes and expenses relating to the building's operation and maintenance. Is Ramone engaged in the trade or business of renting real estate?

No, the office building would be treated as rental property and not a trade or business. The general rule is that Ramone must materially participate in the rental activity and provide substantial services to the rental property. Additionally, Ramone must be considered a real estate professional if the activity is to be treated as a trade or business.

Discuss the concept of ordinary income property and give some examples.

Ordinary income property can be defined as any asset that is not a capital asset. The two most common ordinary assets are inventory and accounts receivable.

What is considered personal use of a vacation rental property?

Personal use includes use of the property by the taxpayer (unless he is working on the property) or his family or non-family's use of the rental property free of a rental charge. If any family member uses the rental property, the days are considered personal use days, even if they paid fair market value for the rental.

. Nathan recently wrote a book on proverbs. He received income for his readings at various bookstores throughout the country.

Schedule C

Royalty income received by Debra, a full-time author, for her mystery novel

Schedule C

Royalty income received by Mark, a professional baseball player, for coal mined on his land in Wyoming.

Schedule E

Royalty income that Jane, a full-time professor of psychology at the University of San Diego, received for a textbook she wrote.

Schedule E

Why are the income and losses (or expenses) separately stated to the partner, shareholder or owner, and on what form(s) are they reported?

Separately stated items are reported on the K-1. All items that can have different tax treatment for different types of partners are separately stated. For example, a corporate partner cannot deduct net capital losses, whereas an individual partner can deduct up to $3,000 of capital losses against ordinary income.

How are gains (losses) from the sale of property acquired from a decedent taxed?

The beneficiary can choose one of two valuation dates to determine FMV. They are the date of death or six months after death (only if a federal estate return is filed) which is termed the "alternate valuation" date. The holding period is always considered long- term.

How are the income and losses from a flow-through entity reported to the taxpayer (partner, shareholder or owner)? Are all of the items from the flow-through entity reported on the same form? Explain.

The flow-through entity must supply each taxpayer a Schedule K-1, indicating the taxpayer's share of income, expenses, or losses. The taxpayer's share is then reported on various places on Form 1040. In the case of a partnership, the K-1 reports the partner's share of ordinary income from the partnership and other separately stated items. Separately stated items are not included in the income or expenses of the partnership but are, instead, allocated separately to each of the partners.

How can a taxpayer determine the basis of units from a mutual fund?

The gain or loss from the sale of mutual fund stock is calculated by subtracting the total cost basis from the sale proceeds. If the units were purchased at different times for different prices, there are several rules that must be followed. The first-in first-out method requires that the first shares purchased be deemed the first sold. Using the specific identification method, the taxpayer specifies which units are to be sold. Using the average basis method, the taxpayer takes the total cost basis and divides by the total units to get an average cost per unit (single category method). For sales after March 31, 2011, the "double-category method," where an average is calculated for the short-term basis and short-term units and an average is calculated for the long-term basis and long-term units is not allowed.

Jake has a vacation rental house at the beach. During the tax year, he and his immediate family used the house for 12 days for a personal vacation. Jake and his son spent two more weekends (4 days) repairing steps from the property to the beach. The beach house was rented for 100 days. How is the beach house categorized this year? Explain your answer.

The house is categorized as primarily rental since the personal use of the property was 12 days. If rental property is used for no more than 14 days for personal purposes, it is considered "primarily rental" property. Days spent working on the house are not considered personal days.

Does the length of time a capital asset is held affect the gain or loss on the sale of the asset? Explain.

The length of time held does not affect the amount of the gain or loss but it does affect the tax rate on the gain. Only long-term capital gains receive preferential tax treatment.

Can the owner of rental property be treated as conducting a trade or business with respect to the rental property? If so, what must the taxpayer do for it to be considered a trade or business?

The taxpayer must differentiate between rental property and a trade or business involving rental property. Generally, if the taxpayer materially participates in the rental activity and provides significant services to the renter such as maid services, and is considered a real estate professional, then the rental activity should be reported on Schedule C as a trade or business. A taxpayer materially participates in the rental activity if he or she works on a regular, continuous, and substantial basis in the operation of the rental.

What is meant by the terms realized gain (loss) and recognized gain (loss) as they apply to the sale of assets by a taxpayer?

The term "realized" is everything the taxpayer receives in the transaction and is sometimes called the proceeds from the sale. This includes cash received plus the FMV of any property or services also received in the transaction plus any debt obligations assumed by the purchaser. The term "recognized" is the amount that will be recorded on the tax return as a gain or loss. Assets sold are considered depending on the type of transaction.

Two methods are used to allocate expenses between personal and rental uses of property. Explain the Tax Court method and the IRS method. Which method is more beneficial to the taxpayer?

The two methods used are the IRS method and the Tax Court method. Using the IRS method, expenses are allocated based on the ratio of total rental days to total days used. The rest of the expenses are allocated to personal use. Using the Tax Court method, interest and taxes are allocated by the ratio of total rental days to the days in the entire year (365 days if held for the full year). This method yields a smaller percentage of the interest and taxes allocated to rental income. This allows a larger portion of other rental expenses to be used to offset rental income. The interest and taxes are deducted on Schedule A anyway. The Tax Court method is generally more beneficial to the taxpayer because less interest expense and real property taxes are allocated to the rental use which allows more of the remaining expenses to be deducted when the gross income limitation applies.

How can the gain from the sale of property be characterized? Why is it important to correctly characterize the gain on the sale of property?

The type of gain is dependent on the character (use) of the asset. Assets are classified as ordinary income property, §1221 capital property (capital assets), or §1231 trade or business property. It is important to correctly characterize the gain on the sale of property because different types of gains are reflected differently on the tax return. Depending on the nature of the asset, the gains can be taxed at different rates.

When depreciation is deducted on a rental property, why is it beneficial for the taxpayer to allocate the cost of the property to other assets (furniture, appliances, etc.) connected with the property, rather than allocating the entire lump sum to the building itself?

To accelerate the tax deduction, the taxpayer should allocate the purchase price to the structure and to furniture, appliances, carpet, as well as to shrubbery or fences. These assets are depreciated over 5 to 15 years. Without the allocation, the lump sum of the rental property is depreciated over 27 ½ (or 39 years), thus delaying depreciation.

Can travel expenses to and from rental property be deducted? If so, what are the rules concerning the deductibility of travel, and how is the deduction calculated? (Hint: You may need to review Chapter 6 to help with this answer.)

Travel costs from the taxpayer's home to a rental property are deductible if the travel is for business purposes, for example, to conduct repairs or attend a condo association meeting. The standard mileage rate for business travel is used in calculating any travel expenses concerning rental property.

. Flow-through entities allocate an appropriate share of the entity's income, expenses, or loss to their partners or shareholders or owners, on a Schedule K-1.

True

A §1221 asset is any asset held for investment.

True

A §1231 asset is any depreciable or nondepreciable property used in a trade or business and not considered an ordinary income asset.

True

By definition, rental properties are passive activities. However, a taxpayer may deduct rental losses, subject to limitations and phase outs

True

If property received has the same basis as the basis in the hands of the transferor, the holding period includes the holding period of the transferor.

True

It is often difficult to pinpoint exactly when a security becomes worthless, so the loss on a worthless security is treated as occurring on the last day of the taxable year.

True

Ordinary gains or losses produced outside the normal course of business relate to the sale of business property held for less than one year or the sale of receivables.

True

Rental income is generally reported on Schedule E.

True

Rental property structures must be depreciated using the straight-line method.

True

The only pure §1231 asset is land used in a trade or business.

True

The partners (shareholders or owners) must report the income and loss from the K-1s they received on a Schedule E of their individual tax returns.

True

When the buyer assumes the seller's liability, the seller includes this amount in computing the amount realized from the sale

True

What is the difference between "recapture" and "unrecaptured" gain provisions?

Unrecaptured gain is taxed at a maximum 25% rate for all straight-line depreciation taken on the property. Recaptured gain is taxed at ordinary rates to the extent the depreciation taken exceeds straight-line deprecation.

Discuss the three categories of vacation home rentals. Include in your discussion how personal use of the property affects the reporting of income and losses of vacation homes.

Vacation rental property can be classified as primarily rental use, primarily personal use, and personal/rental use. The category depends on the number of total rental days to total personal use days the rental property is used. When property is rented for less than 15 days, none of the rental income derived from the short rental period is included in gross income, and no deduction is allowed for rental expenses. If the property is used personally for more than the greater of 14 days or 10 percent of the number of rental days during the year and rented for 15 days or more, expenses are allowed only to the extent that there is income, disallowing losses. A property that is rented for 15 days or more and used personally for no more than the greater of 14 days or 10 percent of the total days the property is rented is considered primarily rental, and losses may be allowed subject to passive loss rules. Passive loss rules, without income limitations, allow losses from rental properties up to $25,000.

Would your answer to Question 10 change if Jake also rented his house (at fair market value) to his brother and his family for 7 days?

Yes, because then the property would be used for more than 15 days for personal use - to a total of 19 days. Rental by family members still counts as personal use even if it is rented for the fair market value.

For sales after 2012, what are the maximum capital gain rates on the following? a. Collectibles gains b. §1202 gains c. Unrecaptured §1250 gains d. Taxpayer's regular tax rate =>25% and <39.6% e. Taxpayer's regular tax rate < 25% f. Taxpayer's regular tax rate > 35%

a. 28% b. 28% c. 25% d. 15% e. 0% f. 20%

How are the terms basis, adjusted basis, and fair market value defined as they apply to the calculation of gains and losses?

a. Basis is defined as the cost of the property bought in cash, debt obligations, or other property or services. Property can also be acquired other than through purchase such as by gift, inheritance, divorce, or other exchange. b. Adjusted basis is the cost, including any increases to the property such as additions, or commission fees incurred on stock transactions, and decreases such as depreciation on property and nontaxable stock dividends or splits. c. Fair market value is the price at which the property would change hands between a buyer and a seller, neither being forced to buy or sell and both having reasonable knowledge of all the relevant facts. Sales of similar property, around the same date, are typically used in figuring fair market value.

From which of the following flow-through entities is ordinary income (K-1) considered self-employment income? a. Partnership. b. S Corporation. c. Trusts. d. Estates.

a. Partnership.

Which statement is true regarding short-term capital gains? a. If there are a net short-term gain and a net long-term gain, both gains are taxed at regular rates. b. A long-term loss offsets a short-term gain, and if a gain results, the gain is taxed at regular rates. c. A long-term loss offsets a short-term gain, and if a gain results, the gain is taxed at preferential rates. d. If there are a net short-term gain and a net long-term gain, both gains are taxed at preferential rates.

b. A long-term loss offsets a short-term gain, and if a gain results, the gain is taxed at regular rates. Feedback: After netting capital gains and losses for long term and short term assets, a resulting short term gain is taxed at regular rates.

All of the following expenses increase the basis of stock held for investment except a. Commission fees on the purchase of the stock. b. Stock splits. c. Stock dividends from a dividend reinvestment plan. d. All of the above increase the basis of stock held for investment.

b. Stock splits Feedback: In a stock split, the basis is decreased by the number of additional shares given. In a two-for-one split, there will be twice as many shares; however, the basis is reduced by half.

25. All of the following statements regarding the definition of basis other than cost are true except a. The basis for assets received as a gift depends on whether the FMV is greater than, equal to, or less than the donor's basis at the time of the gift. b. The basis of property transferred to a taxpayer from a former spouse pursuant to a divorce decree is valued at the FMV at the date of the decree. c. The basis of inherited property is the FMV at the date of death or alternate valuation date that the personal representative is allowed by law to choose. d. The basis for property received in exchange for services rendered is the FMV of the property if the FMV of the services is not known beforehand.

b. The basis of property transferred to a taxpayer from a former spouse pursuant to a divorce decree is valued at the FMV at the date of the decree. Feedback: The basis of property transferred to a taxpayer from a former spouse pursuant to a divorce decree is the same as the former spouse's adjusted basis before the transfer.

. Colin is a high school chemistry teacher who owns some land in Oklahoma that produces oil from its small oil reserve. On what schedule should Colin report the royalty income he receives?

c. Schedule E. Feedback: Schedule E is used to report royalty income from investments.

Medhat and Nuveen, married filing jointly, have $375,000 in MAGI and $80,000 of net investment income (NII). They will pay a surtax of:

d. $3,040 The taxpayers met the threshold of $250,000. The rule is the lesser of the net investment income or the difference in MAGI and the threshold. In this case, $375,000 - $250,000 = $125,000 and the net investment income is $80,000; therefore the surtax is calculated on $80,000.

In 2004, Matthew purchased land for $97,000 for use in his business. He sold it in 2014 for $103,000. What are the amount and type of gain on this sale, before netting of any other gains and/or losses?

d. $6,000 §1231 gain. Feedback: The land was used in his business and is considered a §1231 asset.

. Which of the following entity (ies) is (are) considered flow-through? a. Partnership. b. S Corporation. c. LLC. d. All are considered flow-through entities.

d. All are considered flow-through entities

When there are a net short-term loss and a net long-term loss, which of the following is true? a. The entire short-term loss is used to reduce other income before the long-term loss can be used to offset other income. b. A long-term loss is used to reduce other income before the short-term loss. c. Regardless of the amount of a short-term or long-term loss, the maximum amount of loss that can be taken in any one year is $3,000. Any remaining loss amounts can be carried forward for three years for individual taxpayers. d. Regardless of the amount of a short-term or long-term loss, the maximum amount of loss that can be taken in any one year is $3,000. Any remaining loss amounts can be carried forward indefinitely for individual taxpayers.

d. Regardless of the amount of a short-term or long-term loss, the maximum amount of loss that can be taken in any one year is $3,000. Any remaining loss amounts can be carried forward indefinitely for individual taxpayers. Feedback: The maximum amount of a loss that can be taken in any one year is $3,000 regardless of holding period status. Any remaining loss amounts can be carried forward indefinitely to offset future year gains.

Sally is a full-time author and recently published her third mystery novel. The royalty income she receives from the publisher this year should be reported on what schedule?

d. Schedule C. Schedule C is used to report income earned from a trade or a business.

What is the difference between a §1245 asset and a §1250 asset?

§1245 assets are personal trade or business property subject to depreciation. §1250 assets include depreciable real property used in a trade of business that has never been considered §1245 property