Ascher’s intro.
i. 165(c). This is the pink elephant in the bedroom. You’ll look at the 1200’s and think you have a deductible loss. But look at 165(c). If you’re an individual, you only get to deduct three kinds of losses:
1. losses incurred in a trade or business
2. losses incurred in a transaction entered into for profit (stock loss on a .com)
3. losses incurred in a casualty
ii. When dealing with capital gains problems, the first thing we have to do is figure out what the hell a capital asset is.
1. 1221 helps in this effort: property held by the taxpayer, whether or not connected with a trade or business. So my house is a capital asset. If I sell it at a loss, I’ve got a capital loss; but I can’t deduct it b/c of 165(c).
2. But note: “capital asset” does not include certain types of property held by the taxpayer:
a. Inventory (the bag of chips at the store)
b. Real property or depreciable personal property held in the trade or business
i. Note: 1221(1)-(8) excludes other things from capital gain treatment. However,
iii. The second thing we have to do is figure out whether we’re dealing with a short or long terms capital asset.
1. Go to 1222(1)-(4) and paint by numbers. It’s a one-year test. If you’ve held it for more than one year, LT; if less, ST.
iv. The third thing we ask is what is the net STKL/STKG?
1. Look at 1222(5) et seq.
v. The fourth thing we ask is what is the net LTKL/LTKG?
1. Look at 1222(5) et seq.
vi. The fifth and final thing we care about is what is a net KG?
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