Income-Capital, Gain & Loss

This lesson will help you assist taxpayers who must use Form 8949, Sales and Other Dispositions of Capital Assets, in conjunction with Form 1040, Schedule D, Capital Gains and Losses, to report capital gains and/or losses on the sale of assets. This lesson includes topics on the sale of stock, mutual funds, and the sale of

a personal residence. If the taxpayers have sold any other assets, refer them to a professional tax preparer. This lesson will help you identify the asset’s holding period, adjusted basis, net short-term and long-term capital gains or losses, the taxable gain or deductible loss, the tax liability, and the amount of any capital loss carryover.

The intake and interview sheet asks about income from the sale of property such as stock, bonds, digital assets, or real estate. Ask taxpayers if they sold any stock, securities, other investment property, or a home during the tax year. It is important to ensure that all income is accurately reported on the return. 

At the end of this lesson, using your resource materials, you will be able to:

• Determine the adjusted basis of capital assets

• Determine if the asset’s holding period is long-term or short-term

• Calculate the taxable gain or deductible loss from the sale of capital assets

• Determine whether a home is the taxpayer’s main home

• Determine if a taxpayer meets the ownership and use tests

• Determine when the 5-year ownership/use test period is suspended