Income — Capital Gain or Loss

Time Requirement: 1 hour

Purpose

Students will learn how to use Form 1040, Form 8949, and Schedule D, to report capital gains and/or losses on the sale of assets, including how to identify the asset's holding period, adjusted basis, net short-term and long-term capital gains or losses, the taxable gain or deductible loss, and the amount of any capital loss carryover. The lesson also covers how to report the gain from the sale of a taxpayer's main home.

Objectives

• 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

Teaching the Lesson

Refer to the Lesson Plan for helpful instructor notes, visual aids, TaxSlayer® demos, and Internet links. Point out the key elements of a capital gain or loss are:

• What is the cost basis?
• What is the holding period? (When did you buy it and when did you sell it?)
• What is sales price?

Refer students who may want to work independently to Publication 4491, Capital Gain or Loss.

Key References

This lesson refers to the following publications and forms:

• Form 13614-C
• Publication 4012, Income tab
• Form 8949 and Schedule D
• Publication 17, Basis of Property chapter and Sale of Property chapter

All references to materials can be found by clicking the Job Aids and Media buttons. There are also links to helpful tools that can be found on the irs.gov public portal. For this lesson, the student can link to the following sites for additional help:

• FAQs - Capital Gains, Losses/Sale of Home
• FAQs - Mutual Funds (Costs, Distributions, etc.)
• FAQs - Stocks (Options, Splits, Traders)
• Tax Trails - Capital Gains and Losses
• Tax Tip - Sale of Residence - Real Estate Tax Tips

TaxSlayer® Demos and Tutorials

It is recommended to go to the Practice Lab and access the latest TaxSlayer tutorial for this lesson. The TaxSlayer tutorials can be found by going to the Practice Lab and clicking on the link for TaxSlayer IRS training.

Publication 4012, Income tab, includes instructions and tips on how to report capital gains and losses in TaxSlayer.