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Dealings in Properties: Ordinary Gains and Losses Capital Gain and Losses

The document discusses the tax treatment of ordinary gains and losses from property dealings as well as capital gains and losses. Ordinary gains are fully taxable while ordinary losses are fully deductible. Capital losses can only offset capital gains with any excess carried forward. For individuals, capital gains are taxed at different rates depending on the holding period, while corporations are not subject to a holding period rule. The document provides examples of computing net capital gain or loss for individuals and corporations.

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Jieve Licca Fano
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49 views12 pages

Dealings in Properties: Ordinary Gains and Losses Capital Gain and Losses

The document discusses the tax treatment of ordinary gains and losses from property dealings as well as capital gains and losses. Ordinary gains are fully taxable while ordinary losses are fully deductible. Capital losses can only offset capital gains with any excess carried forward. For individuals, capital gains are taxed at different rates depending on the holding period, while corporations are not subject to a holding period rule. The document provides examples of computing net capital gain or loss for individuals and corporations.

Uploaded by

Jieve Licca Fano
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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DEALINGS IN PROPERTIES

ORDINARY GAINS AND LOSSES


CAPITAL GAIN AND LOSSES
TAX TREATMENT
• Ordinary gain is taxable in full
• Ordinary loss is deductible in full
• Capital losses are deductible only to the
extent of gain from dealings in capital assets
other than domestic stocks or real properties
• Net capital gain is an item of gross income
• Net capital loss is not an item of deduction
against gross income
DETERMINATION OF
NET CAPITAL GAIN
• INDIVIDUAL TAXPAYER
-HOLDING PERIOD RULE
a) Short Term ( not more than 1
year)– 100% is recognized
b) Long Term (more than 1 year) –
50% is recognized
• CORPORATE TAXPAYER
-NO HOLDING PERIOD RULE
RATIONALE OF HOLDING PERIOD RULE
• ABILITY TO PAY THEORY – taxable only when
realized
• LEGISLATIVE COMPROMISE – individual
taxpayers are subject to progressive tax rate;
one time tax results to higher taxes compared
to taxed annually
Problem: Individual Taxpayer
SALE OF CAPITAL ASSETS
ITEM DATE GAIN
SOLD ACQUIRED SOLD (LOSS)
CAR 8/14/12 2/14/14 100K
Office supplies 6/1/13 12/5/14 20k
Laptop 4/5/13 4/5/14 80k
APPLIANCES 7/21/13 8/24/14 (160k)
Books 12/28/13 11/26/14 (30k)
Computation:
Car (long term) 50% x P100k P 50,000
Laptop (short-term) 100% x P80k 80,000
Appliances (long-term) 50% x (P160k) (80,000)
Books (short-term) 100% x P30k (30,000)
NET CAPITAL GAIN P20,000

NOTE: Office supplies is excluded as it is an ordinary


gain separately reported as item of gross
income
Problem: Corporate Taxpayer
SALE OF CAPITAL ASSETS
MAC CORP. assigned its receivable to the bank
without recourse at a loss of P200k. During
the year it disposed an old building at a gain of
P800k and its investment in foreign securities
at a gain of P350k. All assets were held for
more than one year.
Computation:
Sale of foreign securities (100%) P350,000
Assignment of receivables(100%) (200,000)
NET CAPITAL GAIN P150,000

NOTE: a) NO HOLDING PERIOD


b) Gain on sale of building is an ordinary
gain.
PRESENTATION IN THE ITR
SALES PXXX
ADD: Other Taxable Income from operations XXX
TOTAL SALES PXXX
LESS: COST OF SALES XXX
NET SALES PXXX
ADD: NON-OPERATING TAXABLE INCOME
ORDINARY GAIN XXX
NET CAPITAL GAIN XXX XXX
GROSS INCOME PXXX
LESS: BUSINESS EXPENSE XXX
ORDINARY LOSS XXX XXX
NET INCOME PXXX
NET CAPITAL LOSS CARRY-OVER
• Individual taxpayers are allowed to carry over net
capital loss as deduction against net capital gain
of the following year subject to the following
limits:
– LIMIT 1 - Net income in the year net capital loss was
sustained
– LIMIT 2 -Available net capital gain in the following
year
– In short, net capital loss carry over shall be whichever
is the lowest of NCL, LIMIT 1 and LIMIT 2
ILLUSTRATION - NCLCO
2013 2014
Net Income
before dealings of prop. P70K P300K
Dealings in Ordinary Assets:
Ordinary Gain P40k P30K
Ordinary Loss (P80k) (P50k)
Dealings in Capital Assets:
Capital Gain P20k P80k
Capital Loss (P60k) (30K)
Net Capital Gain or (loss) (P40k) P50k
Computation:
2013 2014
Net Income before D in P P70,000 P300,000
Ordinary gain 40,000 30,000
Ordinary loss (80,000) (50,000)
NET INCOME before CA P30,000 P280,000

Net Capital Gain (Loss) P(40,000) P50,000


NCLCO (30,000)
Net Capital Gain P20,000

Net Income before CA P30,000 P280,000


Add: Net Capital Gain - 20,000
TAXABLE INCOME P30,000 P300,000

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