 Hello, and welcome to this session. This is Professor Farhad. In this session, we're going to look at a capital gain and capital losses example. This topic is covered in income tax course, CPA exam regulation, as well as the enrolled agent exam. Before we start, I would like to remind my viewers that I would like to connect with you on a personal level. I am very active on LinkedIn, so if you have a LinkedIn account, you should connect with me. If you don't have a LinkedIn account, you should have a LinkedIn account. It's very important for your professional image. If you are a Facebook user, please like my Facebook page and connect with me on a personal level. You surely want to subscribe to my YouTube channel because this is where I house all my lectures in addition to my website, but the YouTube is more complete than the website. I do have also a Twitter account. Let's go ahead and take a look at this question that's going to help us determine how to net capital gains and capital losses and how to compute the taxes on capital gains and capital losses during the year and as a single individual recorded the following transaction involving capital asset, gain on sale of unimproved land held for three years as an investment. Let's look at the question first. If INAS and the 32% federal tax rate, how much the tax results? Basically, they're asking us how much INAS will pay? How much INAS will pay? The 3000, what do we call the 3000? It's a long term capital gain. Why? Because she held this asset for three years. Loss on a sale of a camper purchased two years ago and used for family vacation, $5,000. So what do we do with this? Let me think. It's two years. It's long term. It's a loss. So it's a long term loss. Absolutely not. It's used for family vacation. This is a personal use asset. And what do we do with personal use assets? We can do anything with it. We can do anything with personal use assets. Why? Because remember what I told you, if individuals, if taxpayer can use their personal use asset losses, what you do every year, you would sell some of your old stuff and you will claim losses and no one will pay taxes. So be careful because it says family vacation. That's why it's personal use. Gain on sale of ADM stock purchased nine months ago as an investment. So this is short term and it's a gain. Well, it's a $4,000 short term capital gain, $4,000. We took care of that. Gain on sale of a fishing boat and trailer acquired 18 months ago at an auction and used for recreational purposes all day. Let's think about this. Well, first you have to be careful. It's used for recreational purposes. So it's a personal use. Okay, but it's a gain. Do we have to do something about it? And the answer is yes, we do. Personal use asset sold at a gain is taxable. Hold on a second. Didn't you just said the losses are not deductible? Yes, losses are not deductible, but gains are taxable. And this is long term. So we have an additional, this is $1,000 long term capital gain. So we have technically 4,000, 4,000 long term capital gain and we don't have any losses in 4,000. Happen to be 4,000 short term capital gain. Now for the 32% tax bracket, how much taxes do we pay? So let's go back to the table. This is the 32% tax bracket. So we fold some place here. Okay, so now you need to remember the capital gain rules. Remember the capital gain rules, if you're in the 10 and 12% tax bracket on the long term, well, let's look at, let's take care of the short term first. Okay, because it's easy to deal with the short term. Let's look at this $4,000 short term. The $4,000 short term, short term capital gain, that's subject to our ordinary income tax. So our ordinary income tax is 32%, so there's no way around this. So 4,000 times 0.32, the tax on this short term is 1,200. Now, what about the $4,000 long term capital, capital gain? How much do we multiply this? Is it 32%? No. Remember, as I was saying, if you're in the 10 to 12, you don't pay any taxes on long term capital gain taxes. If you are 22, 24, 32, and to a large degree 35, in those, you will pay 15%. And if you are in the 37% tax bracket, you pay 20%. So we are definitely in the comfortably in the 32. Therefore, we have to pay 15% on that. So 4,000 times 0.15, that's 600. So the taxes in total capital gain taxes is 18. Let me just do this one more time. 4,000 times 0.32, that's 12, 80, 12, 80. So in total, 18, 80. Now, B, it says, what if ENAS was in the 12% tax bracket? Well, in the 12% tax bracket, the short term capital gain, the 4,000, that's going to be times 0, which is equal to 0. So this 4,000 is no longer taxable. I'm sorry, I apologize. This 4,000, the long term capital gain, I jumped the gun. This 4,000 here, this 4,000, it is no longer taxable. Okay, so this $600 is gone. What remained is the $4,000. The $4,000, it's going to be taxed at our ordinary income, the short term 12%. So 4,000 times 0.12, that's $480. So notice you'll pay $480 on those capital gain taxes if you are in the 12% tax bracket and you will pay $1880 if you are in the 32% tax bracket. Remember, short term capital gain gets your ordinary income tax rate. That's easy. Long term capital gain, it depends on your tax bracket. If your tax bracket, and once again, 10 to 12, 0, from 22 to 35. Now, it's not totally 35. There's like a threshold. Look at the numbers. I believe it's around 525,000. You'll pay 15%. And definitely if you're in the 37% tax bracket, you're making a lot of money, you'll pay 20%. If you have any questions, any comments about this topic, if you're studying for your CPA exam or you're studying for your college courses, study hard, it's worth it. If you want additional lectures, please visit my website. If you happen to do so, please consider donating. Thank you very much and see you on the other