Happy tax return Tuesday! Today's tax return tip for family lawyers is Schedule D.
Schedule D reports gains on the sales of investments including real estate, stocks, bonds and artwork.
Assets held for more than a year are taxed at more favorable rates. The tax is typically applied to the selling price less the cost of the investment (known as “tax basis”). This is why Schedule D is broken into two parts, long-term and short-term.
When I see larger than usual capital gains reported on a tax return, I want to understand whether the proceeds reinvested or distributed.
Sometimes if you are lucky, there are statements in the back of the tax return that will show the detail behind which specific accounts had capital gains. This can help you from a discovery perspective in building your inventory of known accounts.
Reviewing Schedule D is especially important during the pendency of a divorce action where assets that existed at filing may have realized gains/losses to the parties and/or could have been transmuted into the form of other assets.
Capital losses are limited to $3,000 in any given year and it is common to see this dollar amount reported on a tax return. Losses that exceed $3,000 can be carried forward to be applied in later years. This is important because a capital loss carryforward can have value to the parties in the form of future tax savings.
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