Tax Analysts provides news, analysis, and commentary on gains and losses. When a taxpayer sells or otherwise disposes of an asset (such as a good or real property), he may realize a gain (generally, when he sold the asset for more than his basis in the asset) or a loss (when he sold it for less than his basis). The basis in the asset is generally the amount the asset cost the seller, with adjustments for some items. In many cases, the taxpayer will be required to report the gain or loss to the IRS, recognizing the tax consequences of the sale.
There are different kinds of gains and losses. Their character -- either capital or ordinary – depends in general on the underlying asset that was sold. If it’s a capital asset (such as a principal residence), then any gain or loss on its disposition is capital. If it’s a noncapital asset (such as rental property), then any gain or loss on its disposition is ordinary. Capital gains and losses are further broken down by holding period. They are only considered long-term if they stem from an asset that was held for more than a year. Lower tax rates apply to long-term capital gains.
Capital gains and losses are generally reported to the IRS on a Form 8949, “Sales and Other Dispositions of Capital Assets.” If a taxpayer ends the year with more capital losses than capital gains, he can take a capital loss deduction, although it is subject to a limit. If the taxpayer has more net capital losses than the annual limit allows, he can carry the losses over to later years until they are used up. Related party rules prevent gains or losses from receiving preferential capital treatment when they stem from sales or dispositions to some family members or to an entity that directly or indirectly has more than 50 percent common ownership with the seller.
Tax Analysts covers court cases, notices, and budget proposals related to gains and losses. See, for example, the case Philip Long v. Commissioner, in which the Eleventh Circuit reversed the Tax Court to hold that amounts a real estate developer received under an assignment agreement should be characterized as capital gains; Notice 2014-21, which answers questions on the application of existing general tax principles – including gain and loss recognition -- to transactions using virtual currency; and the proposal that first appeared in the administration’s fiscal 2014 budget that would require that the cost basis of some stock be determined using an average cost basis method the determine the proper amount of gain or loss recognition in a section 1012 taxable disposition.