Evening star., 1938-02-08
Your Income
Tax
No. Is.
CAPITAL GAINS AND LOSSES

Section lit Of the Revenue Act Of
1885 deals with the manner or method
OF taking into account in computing
net income gains and losses resulting
from the sale or exchange of capital
assets as computed and recognized
under sections Ill, ll2, and ll3.
Section 1T (a) provides that in the
case OF q taxpayer other than a cor.
poration only the following percent
ages Of the gain or loss recoenised
upon the sale or exchange of a capital
asset shall be taken into account In
computing net income; 100 per cent If
the capital asset has been held for not
more than one year; 80 per cent If the
capital asset has been held for more
than one year, but not for more than
two years; so per cent II the capital |
asset has been held for more than two
years but not for more than i've years; !;
40 per cent If the capital asset has
been held for more than five years but
not Tor more than ten years; 30 Der
cent If the capital asset has been held
for more than ten years.
Capital Assets Defined.
Section 1T (b) defines capital assets
as property held by the taxpayer
(Wnether or not connected with his
trade or business), expressly excluding
therefrom stock in trade Of the tax
payer or other property Of 4 kind
which would properly be included in
the inventory Of the taxpayer If on
hand at the close Of the taxable wear
or property held by the taxpayer pri-
marily for sale to customers in the
ordinary course Of his trade or busines.
In this definition the length OF time
the asset was held by the taxpayer i.
disregarded.
Section 1T (c) provides the rules
Tor determining the period for which a
capital asset has been held. These
provisions are in general to the effect
that, where property is acquired in an
exchange and the property 20 acquired
retains the old basis on which to COM
pute gain or loss or where property
Is acquired from another person and
the property retains the same basi. on
which to compute gain or loss as it had
IN the hands Of the person from whom
1t was so acquired, the period for
winch the property disposed Of in the
exchange or the period during which
the property was held by such former
owner Is also to be included In DE-.
termining the period for which tn.
property Is held for the purpose AZ
section lit 40.
Losses From Sales.
Section lit (d) provides 4 yerv i'm.
portant limitation Affecting all tar.
payers dncluding corporations excent
with respect to banks and trust com.
panies). that is, that losses from sale.
or exchanges OF capital assets shall be-
allowed only to the extent of 80 o0o
plus the gains from such sales or e1.
changes. "a
Section 1T (e) provides that pa;n.
or losses from short sales" of pronertv
ana gains or losses attributable to the
failure to exercies privileges or op-
tions to buy or sell property. shall b.
considered as gains or losses from sale
or exchanges Of capital assets, In the
former the percentage of the gain or
loss to be taken into account shall h.
computed according to the period for
which the property delivered was held
In the latter the gains or losses shall
be considered as arising from sales or
exchanges Of capital assets held for
one year or less.
Section lit () provides that
amounts received upon the retirement
Of corporate bonds and similar evi-
dences OF corporate indebtedness, with
interest coupons or In registered form,
shall be considered ~ amounts re-
ceived in exchange therefor thus CIV
ing to any gain or loss thereby result
ing 10 the holder the status Of capital
satn q losA eths eass miy b.