Evening star., 1939-02-14
CAPITAL GAINS AND LOSSES.

OHDA =
Section lit of the Revenue Act of
1888, dealing with the manner or
method Of taking into account in the
computation os net income the gains
or losses resulting from the sale or
exchange Of capital assets as COM
puted and recognized under sections
Ill, liz and 113, Incorporates 4 new
principle into the income tax law
by the separate treatment accorded
short term" and "long term" gains
and losses.
Section lit ca defines capital as
sets" as property held by the tax
payer whether or not connected
with his trade or bulsiness), but not
including stock in trade of the tax
payer or other property Of kind
which would properly be included
in the inventory of a taxpayer if on
hand at the clese Of the taxable
year, or property held by the tax
payer primarily for sale Is Gus
toners in the ordinary course of his
trade or business, or property, used
tn the trade or business, of q char
acter 1Dhich is subject to the allo1D-
ance for depreciation provided in
section q ~. (The italicized por-
tion Of the above definition is new
in the Revenue Act of 1898 and the
only change from the definition of
capital assets" as contained in the
Revenue Act of 1850
Section 1T (a) also contains the
following definitions Of terms, new
in the Revenue Act of 1898:
(a) "Short-term capital gain"
means gain from the sale or ex-
change of q capital asset held for
not more than ID months, if and to
the extent such gain is taken into
account in computing net income.
(b "Short-term capital loss"
means loss from the sale or ex-
change Of capital asset held for
not more than IL months, if and to
the extent such loss is taken into
account in computing net income.
(c) "Long-term capital gain"
means gain from the sale or ex-
change of capital asset held for
more than II months, II and to the
extent such gain Is taken into ac-
count in computing net income.
Cd "Long-term capital loss"
means loss from the sale or ex-
change Of q capital asset held for
more than 18 months, if and to the
extent such loss is taken into &C
count in computing net income.
(e) met short-term capital gain"
means the excess of short term
capital gains for the taxable year
over the sum Of (A) short-term capi-
tai losses for the taxable year, plus
CD the net short-term capital loss
OF the preceding taxable year, to the
extent brought forward to the tax
able year under subsection (e).
Cd Net short-term capital loss"
means the excess Of Short-term capi-
tai losses for the taxable year over
the short-term capital gains for such
year.
means the excess Of long-term capi-
tai gains for the taxable year over
the long-term capital losses for such
year.
(h) met long-term capital loss"
means the excess of long term capi-
taI losses for the taxable year ever
the long-term capital gains for such
year.
Section lit (b) provides that in
the case Of q. taxpayer, other than
corporation, only the following
percentages Of the gain or loss
recognized upon the sale or ex-
cnanse 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 1s months; e62a per cent if
the capital asset has been held for
more than 1a months but not for
more than "A months; 50 per cent
If the capital asset has been heh
for more than "a months.
Section lit (c) provides for an
alternative tax in the case of a net
iong-term capital gain Of a tax
payer other than a corporation, in
lieu OF the tax imposed by sections
II and II Of the act, If, and only if,
such alternative tax is less than the
tax imposed by sections IL and II.
This alternative tax is the sum of
% q partial tax. computed at the
rates provided by sections II and u.
on the net income Of the taxpayer,
excluding therefrom for this pur-
pose the amount Of such net long
term capital gain, plus (2) 30 per
cent OF the net long-term capital
gain. An alternative tax in the case
OF net long-term capital loss of 4
taxpayer other than q corporation
also IS provided in subsection (c) of
section lit, in lieu Of the tax i'm
posed by sections IL and 12. In such
case, the alternative tax is available.
II, and only If, such tax is greater
than the tax imposed by sections II
and IL and is arrived at by comput-
ing the excess Of D a tax, computed
at the rates provided by sections
IL and II, on the net income of the
taxpayer, including for this purpose
the amount Of such net lonx-term
capital loss, over t2l 30 per cent
of the net long-term capital loss.
Section lit (d) contains the linai-
tations on deductions of CAPITAL
losses. In the case of corpbrations,
losses from sales or exchanges of
capital assets are allowable as de-
ductions only to the extent of $4,000
plus the gains from such sales or
exchanges, except that in the case
OF certain banks or trust companies,
this limitation is subject to the
modification provided in subsection
Cd Cd. In the case of . taxpayer
other than q corporation, short
term capital losses are allowable
as deductions only to the extent of
short-term capital gains, that is,
losses from sales or exchanges of
capital assets held for 1S months
or less are allowable as deductions
only to the extent OF gains from
sales or exchanges of capital assets
held for not more than 18 months.