Net Capital Gain and Loss

Read this post in connection with this one.

When capital assets are exchanged or sold, income from the transaction is called a net capital gain. If the transaction results in a loss, it's called a net capital loss. So, remember what a capital asset is? Here's the opposite list; the ordinary assets:

1.) Real property bought from a real estate developer or dealer

2.) Real property for lease or rent from a real estate lessor

3.) Real property bought by a taxpayer in the ordinary course of business if he habitually engages in the real estate business

4.) Merchandise inventory of the business

5.) Buildings, machinery, equipment, furniture and fixtures used in trade or business

Changing business from real estate into something else won't change real property considered as ordinary assets into capital assets. You're warned.

Net Capital Loss Carry-over

Capital losses can be allowed, but only up to the extent of the gains from the transactions in question. If a taxpayer that isn't a corporation sustains a net capital loss in a taxable year, that loss is treated in the succeeding taxable year as a loss from the sale/exchange of a capital asset held for more than 12 months. The holding period (see Final Capital Gains Tax, last 2 paragraphs) governs the percentage of gains or losses taken into account into computing net capital gain, net capital loss and net income. 100% of the capital asset is taxed if the capital asset has been held for less than 12 months and 50% if it's been held for more than 12 months.

For corporations, they can't do net capital loss carry-over and the holding period doesn't apply to them -so losses are accounted for at 100%. Like individuals, however, corporations are allowed to credit their capital losses only to the extent of their capital gains.

The net capital gain must be reported in your ITR subject to regular income tax; but there are some transactions that are to be made in special tax returns. They're here:

1.) Capital gains from sale of real property

2.) Capital gains from sale of shares of stock that aren't listed and traded in the stock exchange

3.) Percentage tax on the sale/exchange of shares listed and traded in the stock exchange (1/2 of 1% of the gross selling price or gross value in money)

4.) Percentage tax on the sale/exchange of shares of stock through an IPO at the stock exchange (gross selling price or gross value in money in proportion of the shares sold/exchanged to the total outstanding shares of stock after listing at the stock exchange: 1% if over 33and 1/3%, 2% if over 25% but not over 33 and 1/3% and 4% if up to 25%)