Question

What is a Capital Asset?, Holding Period, and Calculation of Gain or Loss, Net Capital Gains (LO 8.1, 8.2, 8.3)

During 2017, Tom sold Sears stock for $26,200. The stock was purchased 4 years ago for $36,680. Tom also sold Ford Motor Company bonds for $91,700. The bonds were purchased 2 months ago for $77,945. Home Depot stock, purchased 2 years ago for $2,620, was sold by Tom for $3,930.

Calculate Tom's net gain or loss, and indicate the nature of the gain or loss.
$

Answer 1

For Firms. Capital asset is defined as an asset which has a useful life more than ome year and which is not intended to sold during the normal course of business.

For individuals, Capital asset refers to the asset owned by the individual for personal or investment pupose. It does not include property held for sale in the normal course of business, government publications purchased or received for free from the government or

A capital asset is defined to include property of any kind held by an assessee whether for his business or profession or not. It includes all type of property movable or immovable, tangible or intangible, circulating etc

HOLDING PERIOD - A holding period is a period in which the investment is held by the investor or the time period between the purchase and sale of the investments

Loss on Sears Stock - 36680 - 26200 = 10480

Nature of Loss - Long Term

Gain on Ford Motor Company Bonds - 91700 - 77945 = 13755

Nature of Gain - Short Term

Gain on Home Depot Stock - 3930 - 2620 = 1310

Nature of Gain - Long Term

Net Capital Gain = 4585

Short Term Capital Gain refers to the gain on sale of assets or investments held for less than one year where as

Long term capital gakn refers to thr gain on sale of assets or investments held for more than one year.