From: ask@cbnews.cb.att.com (Arthur S. Kamlet)
Subject: Re: capital loss/gain and tax laws..
Organization: AT&T Bell Laboratories,  Columbus, Ohio
Distribution: usa
Date: Sat, 21 Nov 1992 21:23:23 GMT
Keywords: wash sale, loss/gain

In article <6803@ucsbcsl.ucsb.edu> 6500amd@ucsbuxa.ucsb.edu (Amitav Das) writes:
>I am a new investor and trying to find out about the tax
>laws related capital loss/gain. Here are my questions:

As you noted, Chris Lott posts the Frequently Asked Questions
(FAQ) list approx every two weeks, and I recommend everyone
read it.  Some of your questions are answered there.

>1. How do you compute capital loss/gain if you have done
>   transactions (buy&sell same item) of a) stocks, b)
>   Mutual Funds? Please give examples.

In general, when you have completed a transaction by buying and
selling (in either order) a stock or other capital asset, the
difference between your cost basis and the selling price is a
capital gain (or loss, if negative) and is reported as income in the
year the transaction closes.

Having said this, I'll add that the tax regulations spell out many
exceptions, which are beyond the scope of this article.

It's your job to identify the gains/losses.  The Mutual Fund Manager
or stock company or broker will sometimes "remind" you that you
might have a capital gain/loss event by sending you (and the IRS) a
Form 1099-B when you sell a stock or (non-Money market) mutual fund
shares.  The FAQ (I think) lists some ways to figure these
gains/losses, including the rules to follow when you sell some but
not all of the shares of stock or mutual fund that you own.  (If
the FIFO, LIFO, Running Average, and "designated" methods, and their
restrictions, are not in the FAQ, they probably should be.)

>2. What is the last date that you can sell to show it as
>   a loss/gain?

Since Thanksgiving is almost here, it's probably a good idea to post
some useful dates.  These assume your personal tax returns are filed
based on a December 31 fiscal year end, and that you use "regular
way" reporting.  If you wish to change either your fiscal year or
your method of reporting you should probably consult with your tax
advisor.)

1992 Useful Tax Dates
Nov 30 - Last date to "double up" shares held at a loss, sell 31
         days later (no wash sale), and still keep your position in
         that stock.
Dec 23 - Last day to buy back a short position in a stock.
Dec 30 - Last day to buy back a short position in an option.
Dec 31 - Last day to sell long stock or options for a gain.
       - Last day to sell stock or options for a loss.

>3. What is short term/long term gain/loss?

When your holding period exceeds one year you have a long-term
gain/loss; otherwise it is short term.

>4. What is "wash sale"?

See the FAQ.  Basically, when you sell at a loss and buy a
"substantially identical" asset within +/-31 days of the sale, you
are not permitted to declare the loss, but instead you defer it
until you close that position without another wash sale.

>5. If you sell lets say IBM today and get some loss of
>   $X can you buy IBM (same or more quantity) tomorrow
>   and still show it as a loss for 1992? What are the
No.  See the FAQ.
>   constraints/limits as far as days you've to wait, etc?

>6. What are the tax forms (additional) and publications
>   you need to do this sort of filing?

See IRS Publication 550  (Call the IRS at 800-TAX-FORM to
order free forms/publications) and Schedule D.  (If you have a
zillion trades to report, use Form D1.)  The instructions for
Schedule D lead you through the form, and you end up with a single
number which goes on the front page of your Form 1040.

>7. How much Dividend Reinvestment complicate this affair?

If you plan to sell portions of shares held in a dividend
reinvestment account, you have a bit more complicated
arrangement -- but you still never have to sill out more than one
long term and one short term line on Schedule D, wven if you had
dozens of long term reinvestments.  Just calculate your cost basis
of all the reinvestments to get a single long term cost basis, and
report the acquisition date as a single range of dates.

In any case you have to choose a method for deciding which shares
you sold (see above.)
-- 
Art Kamlet  a_s_kamlet@att.com  AT&T Bell Laboratories, Columbus
Newsgroups: misc.invest