SUBJECT

Module 6
Dealings in Properties – Capital Assets Gain
 + Gross Income*
Property Classifications: Personal Loss
 Ordinary Capital  deduction to extent of
o Inventories Assets capital gain*
 a. Stock in trade (inventory) Capital Gains Tax (6%)
 b. Property of a kind which would be Real  whether gain/loss
included in inventory of the taxpayer if on  higher of SP or FMV
hand at the close of the taxable year *ordinary income tax rates will essentially apply
(inventory)
 c. Property held by the taxpayer primarily Basis (General Rules)
for sale to customers in the ordinary course  Acquired by purchase
of trade or business (inventory) o cost thereof
o Depreciable PP-Used in Business  Acquired by inheritance:
 Ordinary Gain {Gross Income} o fair market price or values as of the date of
 Ordinary Loss {Itemized Deduction Item} acquisition,
o RP-Used in Business  Acquired by gift,
 Ordinary Gain {Gross Income} o same as it would have been in the hands of the
 Ordinary Loss {Itemized Deduction Item} donor or the last preceding owner by whom it
was not acquired by gift,
 Capital o except that if such basis is greater than the fair
o property held by the taxpayer whether or not market value
connected with his trade or business  If the property was acquired for less than an
o Does not include ordinary assets. adequate consideration in money or money’s
o Personal Property worth,
 Capital Gain {Gross Income} o amount paid by the transferee for the property
 Capital Loss {Itemized Deduction Item}  The basis as defined in paragraph (C) (5) of this
o Real Property Section, if the p roperty was acquired in a
 Subject to Capital Gains Tax transaction where gain or loss is not recognized
 (6% of SP or FMV) under paragraph. (c) (2) of this Section

 When 2 or more capital PP are sold = net capital

gain/loss
o Net capital gain = added to gross income
o Net capital loss = deductible only to the extent
of capital gain

 Whether personal property or real property, sale

can result into either gain/loss
o Ordinary Gain/Loss
 = Selling Price – Net Book Value
o Capital Gain/Loss
 Selling Price – Historical Cost

Gain
 + Gross Income*
Personal
Loss
Ordinary  Deduction*
Assets Gain
 + Gross Income*
Real
Loss
 Deduction*
SUBJECT

Holding Period – Applicable to individuals ONLY Transactions resulting in capital losses or gains even
 = Time property was bought until it was disposed if there is no sale/exchange of cap. Assets
 Applies to capital gain/loss whether from capital
personal property or real property  1) Worthless shares of stock
 Short term (<12 months) – 100% o Became worthless during taxable year AND are
 Long term (>12 months) – 50% capital assets
o Loss from sale/exchange on last day of taxable
Carry over – applicable to individuals ONLY year = capital loss
 Capital loss or net capital loss of capital personal  Decline in value is not a loss for taxation
property (unlike accounting)
o BUT cannot exceed the taxable net income of  2) Worthless Bonds
prior period o Worth less and charged off within taxable year
o Higher of Net Cap. Loss or Net Income in year AND are capital assets
of loss o Loss from sale/exchange on last day of taxable
 100% carryover year = capital loss
 Until next period AND only if next period = net  Restructuring?
gain/gain  3) Retirement of bonds
o Amount received by holder upon retirement =
considered as amounts exchanged
General Professional Partnership  Considered capital gain/loss?
 Capital gains or losses will be accounted for by the  4) Short sales of property
partners o Gain/Loss from short sale = Capital Gain/loss
o in proportion to their interest in the partnership o Short sales-
 a transaction in which a speculator sells
Capital Gains Tax securities, which he does not own in
anticipation of a decline in its price
 binenta niya with the notion na kikita siya sa
Sale of shares of stock not traded change in fair value
in local stock exchange  5) Option Gains/Losses
15% of Net o Kept/Forfeited Option Money
Sale, barter, transfer, and/or Capital o Gain or losses on account of failure to exercise a
assignment of shares of stock Gains privilege or option to buy or sell property =
publicly-listed companies not capital gain or losses
compliant w/ mandatory public
 6) Liquidating Dividends
ownership
o Gain/loss sustained by stockholder during
6% of liquidation = cap. Gain/loss
Sale of real property classified as Higher of o Applies to both corporations and individuals
capital asset FMV or  7) Liquidation of a partnership
Selling price o Retirement of a partner/partnership dissolution
Amount Received
(Investment in PS)
(Share in undistributed NI reported)
Gain/Loss

EXERCISES.