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AARP Foundation Tax-Aide

Frequently Asked Questions - Sales of Securities

Q: What is the lowest tax rate on long-term gains for people who are already in the 10 percent–15 percent tax bracket?

A: 5 percent for most assets. In 2008, the 5 percent rate drops to zero.

Q: If I change from one fund family to another, is there any way I can do it without paying a capital gains tax?

A: You are actually selling one fund and purchasing a new fund. As such, the sale of the fund shares you replaced would need to be reported on Form 1040, Schedule D.

Q: Last year I had some capital losses that exceeded the $3,000 maximum allowed. How do I get to use the remaining losses?

A: You need to use last year's return and complete the Capital Loss Carryover worksheet in this year's Schedule D instruction book to allocate this carryover between long and short term. Then enter the short-term carryover, if any, on Part I, Line 6 and the long-term on Part II, Line 14.

Q: How do I figure a gain or loss on a sale of stock?

A: The gain or loss on a sale stock is calculated by subtracting your cost basis from the proceeds of the sale. The dates of purchase and sale are important to determine whether the loss is a short-term one or a long-term one.

For your tax basis (cost basis) for the stock, you should have that in your records; or if not, your broker might be able to provide that to you. Alternatively, the company may be able to provide you the value of the stock on the purchase date.

Please note: Always keep purchase records until an asset is sold!

Q: I am a longtime holder of AT&T stock. There have been a number of splits and spinoffs, and now a reverse split. How do I allocate my original AT&T basis to each share of the stocks I now hold, or sold last year?

A: This website has tax basis information for AT&T stockholders.

Q: I had a major loss on my stock portfolio last year. How can I put this on my tax form?

A: Did you actually sell something, or did you experience only "paper losses"; that is, did you not actually sell any investments, but saw the value go down?

If nothing was sold, there is nothing to report on your tax forms. You have no realized loss.

If you actually sold investments and had a capital loss, you can deduct this using Schedule D of Form 1040. A maximum of $3,000 in net losses from Schedule D may be taken in one year. Any remainder is carried over to the following year.

Q: How do I figure capital gains, or losses, on property or stock I inherited?

A: The cost basis for inherited property is the Fair Market Value of the property at the date of death of the deceased. In some cases, the person handling the estate may elect to use an alternate date of valuation. This can be up to 6 months past the date of death.

Q: I had some stock in a company which was purchased by another. Our old shares were replaced with shares in the new company. What is the cost basis and holding period for the new shares?

A: Your basis for the new stock in such a corporate acquisition is the same as your basis in the original stock. Regardless of the number of shares before and after the acquisition, the TOTAL cost basis remains the same. Only the cost basis per share changes. The holding period for the new shares includes the holding period of the original shares that were replaced.

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