Question

Shaun Murphy sells the following capital assets in the 2019:

• A truck for $10,000 on June 1, 2019. He originally purchased it in 2016 for $12,000 and used it for personal purposes. LT
• Shopkins collectables (held for investment) that his daughter told him were rare on September 15, 2019 for $1,000 (he has to pay $100 shipping costs to send the collectables to the buyer). Shaun originally purchased the collectables for $5,000 on March 16, 2013.LT
• A rental property for $120,000 (he has to pay $10,000 to a realtor as a sales commission) on June 12, 2019. He originally purchased the property for $100,000 on April 12, 2013. All of the gain is unrecaptured Sec. 1250 gain.LT
• Coke stock for $5,000 on October 31, 2019 that he originally purchased on February 10, 2018 for $3,000. LT
• Nike stock for $6,000 on April 15, 2019 that he originally purchased on January 1, 2019 for $10,000. ST

Calculate the capital gain or loss on each asset and complete the required capital gains netting process. After all netting how will Shaun be taxed on the sale of the assets? He has no other sale of capital assets. Calculation of gain or loss realized, recognized and character. If the character is long-term (LT), you should also input whether it is taxed at 28%, 25%, or 0/15/20%.

1. 	Amount Real.	Adj. Basis	Gain Real	Gain Rec.	ST/LT
   Truck					LT
   Shopkins					LT
   Rental					LT
   Coke					LT
   Nike					ST

Answer 1

Capital Asset Period of Holding short or long Term Working Note No. Truck Shopkins Rental Coke Nike More than 1 year LT More than 1 year LT More than 1 year LT More than 1 year LT Less than 1 year ST

WN 1.
Sale of Truck (Held for personal use)
Purchase price = $12,000
Sale price = $10,000
Long Term Capital Loss = $2,000
Carry forward /adjustment = Capital loss on asset used for personal use cannot be set off or carried forward

WN 2.
Shopkins Collectibles
Purchase price = $5,000
Sale price = $900 [ie. $1,000 less shipping costs]
Long term Capital Loss = $4,100 (A)
Special Tax rate = 28%

WN 3.
Rental Property
Purchase price = $100,000
Sale price = $110,000 [ie. $120,000 less sales commission]
Years held = 6 years
Depreciation = $21,800 [ie. 100,000*6/27.5] …… (B)
Capital asset value after depreciation = $78,200
Long Term Capital Gain = $31,800 (C)
Recapturing Tax rate = 25%
Capital Gain after recapturing = $5,450 [ie. $21,800 * 25%]
Note: Capital gain on depreciated amount is taxed at 25%.
WN 4.
Coke Stock
Purchase price = $3,000
Sale price = $5,000
Long Term Capital Gain = $2,000 (D)

WN 5.
Nike Stock
Purchase price = $10,000
Sale price = $6,000
Short Term Capital Loss = $4,000 (E)

WN 6.
Netting of Capital Gain
Total Long Term Capital Gain = (C) less (B) plus (D)
           = $12,000
Total Long Term Capital Loss = (A)
           = $4,100
Total Short Term Capital Loss = (E)
           = $4,000
Note: Short term capital loss cannot be set off against Long term capital gain so this will be carried forward to next year.

Summary
1.   Capital Gain tax is 0% as total gain is less $39,375
2.   Capital Gain Tax on recaptured income = $5,450
3.   Carry forward of Short term capital loss = $4,000