Video: Introduction to Amount and Character of Gains and Losses, and Netting Process

In this lesson, Nick Palazzolo, CPA, unravels the intricacies of recognizing gains and losses, delving into key distinctions between capital and ordinary classifications. He clarifies how these gains and losses come into play upon the disposition of property—such as stocks and real estate—and how their treatment affects tax calculations. Nick elucidates the significance of holding periods for capital assets and the ramifications on tax rates, illustrating why understanding these rules is essential. Through an engaging walkthrough, he expounds on the process of netting gains and losses and the impact of IRS limitations, providing an enlightening example of how to handle capital transactions on tax returns. This comprehensive overview is indispensable for those seeking clarity on tax implications surrounding asset disposition.

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Video Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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Diving into our gains and losses, how are we going to net them all together? We've got gains and losses that generally happen on the disposition of property. Think about it, you don't really recognize any gains and losses when you purchase anything, it's when you sell things. Now, when a taxpayer disposes of property, the gain or loss recognized can be classified as either a capital gain or a loss or an ordinary gain or loss. We'll see that capital gains and losses have preferential treatment and as such, the tax rules are going to be strict in not letting you recognize it as capital and making you recognize it as ordinary in some cases. The classification depends on the nature of the asset being disposed of, how it was used and the holding period of the asset. This classification is going to be crucial because it will, as we'll see, affect the tax treatment of the gain or loss. Talking more about capital gains or losses, these arise from the disposition of capital assets. One thing we'll see throughout this is what is a capital asset? Obviously, we've got some examples here, but we're going to have a lot more criteria as well. It makes sense, capital gains and losses tied to capital assets. Capital assets are generally defined as property held by a taxpayer for personal use, investment, or other non-business purposes. Some examples are going to include stocks, bonds, personal residences, and personal vehicles. The tax treatment of these gains or losses will depend on the holding period of the asset, short-term and long-term capital gains and loss. We'll talk about why this exists on the next slide, but one thing to memorize if you don't have this in your knowledge bank already, if the asset

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Property Tax: Acquisition and Disposition of Assets

Module: 5 Concepts, 55 Videos

Basis and Holding Period of Assets Overview

0:44

Introduction to Basis and Holding Period of Assets

8:20

Costs Included in a Asset's Taxable Basis

7:24

Examples of Calculating Tax Basis