Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, February 6, 1995 TAG: 9502070004
SECTION: MONEY PAGE: 6 EDITION: METRO
SOURCE:
DATELINE: LENGTH: Long
How much of this loss can you report on Form 1040, line 13, and what losses are disallowed under the wash sale rule? Dividends have been reinvested.
A: To determine the deductibility of capital losses, all capital gains and losses incurred during the year must be totaled on Schedule D, Capital Gains and Losses, for Form 1040. Any capital losses are deductible to the extent of any capital gains plus, in the case of individual taxpayers, ordinary income of up to $3,000. Therefore, both net long-term capital losses and net short-term capital losses may be used to offset up to $3,000 of an individual's ordiary income.
The wash sale rules generally apply to all classes of taxpayers. The rules deny losses that are sustained upon a sale or disposition of stock or securities if within a period beginning 30 days before the date of the sale or disposition and ending 30 days after that date, the taxpayer has acquired, or has entered into a contract or option to acquire, substantially identical stock or securities. For the purpose of the wash sale rules, securities are "substantially identical" if they are not substantially different in any material feature or in several material features considered together.
- Answered by F. Fulton Galer of McLeod & Co.
Q: I retired from a career in the naval service in 1974 and subsequently resided in New York State. My retired pay was fully taxed under New York State law. In 1989 the Supreme Court ruled that the taxes levied were unconstitutional, and in 1994 I was refunded the entire amount I paid to New York State for 1986, 1987, 1988 and 1989 plus interest.
Federal instructions on page 16 refer me to Publication 525. I have requested Publication 525 from the IRS, but they claim it is not in stock. How will the refund be taxed? Is it the same as ordinary income?
I am also concerned about Virginia income tax consequences. I have been a Virginia resident since 1992. Since Virginia now taxes military retired pay the same as all other retired pay, am I obligated to pay Virginia state income tax on the money New York State refunded to me even though I was not a Virginia resident when I paid it?
A: For federal purposes, the taxability of your state tax refund depends on whether you deducted part or all of these taxes for the year in which they were paid.
If you did not itemize deductions on Schedule A for any of these years, none of the tax refund is taxable. If you itemized for any of these years, the taxable portion generally is limited to the smaller of the amount deducted on Schedule A or the amount of the refund.
A more specific answer would require detailed knowledge of the particular items included in the return for each year in question. Each year must be calculated separately, and all of the interest received must be included in taxable income, regardless of the taxability of the state tax refunds.
None of the tax refund would be taxable on your Virginia return. Section 58.1-322.C.5 specifically excludes "the amount of any state income tax refund or overpayment credit reported as income on the Federal income tax return." Subtract on Line 36 of your Virginia return any such amount that is included in federal adjusted gross income.
- Answered by James B. Taney of Anderson & Reed
Q: My aunt died Dec. 5, 1994. I am sole beneficiary. She had certificates of deposit, savings account and checking on interest.
Do I file taxes on the interest from the CDs, savings and checking after Dec. 5, 1994, or do I file taxes the entire year for her? My aunt's will is still in probate court.
A: The last tax year of a deceased taxpayer ends with the day of his or her death. For a "cash basis" taxpayer, this means that only income actually or constructively received up to the end of the day of death is includable in the decedent's final tax return. Therefore, any interest income credited to the various accounts of your deceased aunt after Dec. 5, 1994, would not be reported on your aunt's 1994 final tax return.
If a decedent's assets are not transferred immediately upon death to a named beneficiary, then the assets become the property of the decedent's estate. For tax purposes, an estate is a separate taxable entity which is responsible for reporting the income and deductions emanating from a decedent's property until such time as the beneficiary takes possession of the property. This reporting requirement is met by filing federal form 1041 and Virginia form 770.
If you were entitled to and took legal possession of your aunt's assets on Dec. 6, 1994, interest income credited to the various accounts after that date would be reported by you. However, because your aunt's will is still in probate, it is likely that you have not yet taken legal possession of your aunt's assets. If this is the case, an estate for the decedent exists and it is this estate which is responsible for reporting interest income received on these accounts after Dec. 5, 1994. It will continue to have this reporting requirement until the assets are transferred to the beneficiary.
- Answered by David Lucas of Lucas & Boatwright
by CNB