OLT TAX CORNER ~ Capital Gain/Loss & Sale of a Home

Capital Gains/ Losses & Sale of a Home FAQ
  1. How do I know what a capital gain is?
  2. I sold stock this year, where do I put that information?
  3. I bought stock this year. Do I need to report it on my taxes?
  4. 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?
  5. I own stock that became worthless last year. Can I take a bad debt deduction on my tax return?


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:
  • Stocks or bonds held in your personal account
  • A house owned and used by you and your family
  • Household furnishings
  • A car used for pleasure or commuting
  • Coin or stamp collections
  • Gems and jewelry
  • Gold, silver, or any other metal
Any property you own is a capital asset, except the following noncapital assets:
  1. Property held mainly for sale to customers or property that will physically become a part of the merchandise that is for sale to customers.
  2. Depreciable property used in your trade or business, even if fully depreciated.
  3. Real property used in your trade or business.
  4. A copyright, a literary, musical, or artistic composition, a letter or memorandum, or similar property:
    • Created by your personal efforts,
    • Prepared or produced for you (in the case of a letter, memorandum, or similar property), or
    • Acquired under circumstances (for example, by gift) entitling you to the basis of the person who created the property or for whom it was prepared or produced.
  5. Accounts or notes receivable acquired in the ordinary course of a trade or business for services rendered or from the sale of property described in (1).
  6. U.S. Government publications that you received from the government for free or for less than the normal sales price, or that you acquired under circumstances entitling you to the basis of someone who received the publications for free or for less than the normal sales price.
  7. Certain commodities derivative financial instruments held by commodities derivative dealers. For more information, see section 1221 of the Internal Revenue Code.
  8. Hedging transactions, but only if the transaction is clearly identified as a hedging transaction before the close of the day on which it was acquired, originated, or entered into. For more information, see the earlier definition of hedging transaction, and the discussion of hedging transactions under Commodity Futures, later.
  9. Supplies of a type you regularly use or consume in the ordinary course of your trade or business.
Top
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 Form 1040.
Top
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. The sale of stock however does, so whenever you decided to sell the stock, you will need to report that on your taxes.
Top
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.
Top
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 Form 1040, 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.
Top