"Capital Gain or Loss from Assets Acquired After Decemer 21, 2011"

[bstevens33]

While in Easy Step mode TT shows the message above and asks to "Enter the portion of gain or loss from assets acquired after December 31, 2011". It also shows a long-term capital loss of -99,349 which looks like a carryover from prior years. This comes up while starting my Arizona State taxes. Any ideas what this means? Thank you.

[ThomasM125]

You are being asked to enter the portion of any gains or losses reported on your federal tax return during the current year that were from the disposition of assets purchased or acquired after December 21, 2011. It looks like you have a capital loss carryover from previous years, so you need to see what portion of that appears on your federal tax return this year and if it was from assets acquired after December 21, 2011, you should report that amount.

Capital losses on your federal return are limited to $3,000 per year, so if you didn't sell anything in 2020, your loss is probably that amount. 

[bstevens33]

My capital loss on line 7, Form 1040 is -$3,000. Some of my mutual fund sales in 2020 were acquired after Dec. 21, 2011. Do I report the loss for 2020 as a negative number when responding to this TT query? Presumably yes since it's a loss. Without the carry-over loss from previous years my sales in 2020 are gains. So my question is do I report the situation before the prior year carry-overs were applied or after?

Thank you to ThomasM125 for the previous response.

[ThomasM125]

If you only had gains in 2020, then the $3,000 loss was from sales reported in previous years. So, you need to see if those sales were from assets acquired December 31, 2011. If so, then you would most likely be reporting -$3,000, or $3,000 as a negative number.

[mettleurgist]

I am getting the same question in my Turbotax Arizona State filing. I have a long-term capital gain of $50,000. This is all from actively managed mutual funds that I have held for years (some before 2011). All of them have their dividends reinvested. I have never sold/exchanged anything in them over the years; I have occasionally added to them. This $50,000 amount is essentially the long-term cap gains for the active fund manager making trades.

So my question is - am I supposed to go back through all the dividend reinvestments and my purchases over the years until 2011? Or do I enter the entire amount of $50,000 since this is this year's long-term cap gains from fund manager trading and dividend reinvesting?

Thanks.

[zhaos172002]

I have the same question, my 2020 options trade positive, do I enter that amount here?

[mettleurgist]

I did some further research on this question. From an aztax-aide.org posting (https://aztax-aide.org/wp-content/uploads/2020/11/Net-Long-Term-Gain-2020-11-16.pdf?6cc19a&6cc19a) I found that Short Term transactions (gains?) nor dividend distributions are not to be included. Don't know if this would also include reinvested dividends - if so, this becomes a much more difficult computation.

Here is the relevant text from the posting:

"Arizona provides a reduction of 25% of the net Long-Term Capital Gains received from assets
acquired after 12/31/2011 and included in the Federal Adjusted Gross Income (AGI). This credit
is shown on page 1, line 23 of AZ-140.

There is no reduction necessary if the Net Capital Gain for assets acquired after 12/31/2011 is a
loss reported as a reduction of Federal Adjusted Gross Income.

To calculate the Net Long Term Capital Gain, you must review the taxpayers broker statement
detail of Long-Term transactions and net the Gains against the Losses. Only include transactions
where the acquisition date can be verified on the brokers statement.

Do not include Short Term transactions nor Dividend distributions. Neither are subject to the
25% reduction. For assets acquired by Gift or Inheritance, the acquisition date is the date the
asset was acquired by the original owner."

I then saw a posting in the Bogelheads forum (https://www.bogleheads.org/forum/viewtopic.php?t=205727) - search for "December" - there will be 6 occurrences - go to the last 2 occurrences for the post of interest:

"Note that AZ offers a subtraction of 25% of the LTCGs generated on shares purchased after 12/31/2011. For example, if you hold a fund which was purchased after that date or to which you added shares after that date from reinvested divs and cap gains, you can subtract 25% of the cap gains paid out on those shares whether it is from a cap gain distribution or a redemption. From the AZ Form 140 Inst:
You may subtract 25% (.25) of any net long-term capital gain included in your federal adjusted gross income that is derived from an investment in an asset acquired after December 31, 2011. Use the worksheet on page 29 of these instructions, Worksheet for Net Long-Term Capital Gain Subtraction for Assets Acquired after December 31, 2011, to determine the allowable subtraction. Keep the worksheet for your records.
Assume you have a fund for which reports 8000 of cap gains or your sale produces a LT cap gain of 8000. Half the shares were purchased prior to 2012 and half after that date. Therefore 4000 of your cap gains are eligible for subtraction. 25% of 4000 = 1,000. which shows as a subtraction on your AZ 140. Effectively, this reduces the rate you pay on these gains by 25% regardless of which marginal bracket you are in. If it is the 4% bracket, then you actual rate becomes 3%."

I had found an older (I think 2016) AZ tax form (perhaps 140PY?) that had instructions & guidance on this (can't find the document anymore) - it specifically said that in the case of mutual funds, where the specific shares being sold/bought could not be determined, they could not be claimed for this LT Cap Gain reduction.

I decided to enter zero in my tax form as it is the safest option. 

[fanfare]

Year 2011 is the inaugurations of covered transactions.

Your broker knows your basis for purchases since then and reports the basis to the IRS.

purchases before that are non-covered. The broker will not report the basis to the IRS. You must supply the basis from your own records.

I' m not sure why the date isn't after Dec 31, 2010 instead of Dec 31,2011, since 2011 purchases are supposed to be  covered. Perhaps I am off by one year,

[sdreskinaz1414]

I have the same issue with my 2020 AZ tax return and I am bewildered. This is the first time that AZ has required such information. I'm afraid that I will have to contact a professional tax expert who is familiar with AZ  tax law.

[AmyC]

@sdreskinaz1414 

Look at where your capital gains are coming from.

• Is it all from a 1099-B? Enter that amount. 
• Did you sell the house that has been in the family for 30 years with various cousins living in it? It is from before 2012 and does not count.
• Did you sell some stocks? Did you buy them before 2012? They don't count. Bought them 2012 or later? They count.

Just go through stuff and make it make sense.

[fanfare]

"Did you sell some stocks? Did you buy them before 2012? They don't count."

@AmyC 

Exactly what does this mean ?

[H W]

My long term capital gains are from sales of stocks and from 1099-DIV from mutual funds.  The 1099-B makes sense, but how do I calculate the portion from mutual funds when portions were bought before 2011 but others were bought after 2011.  The 1099-DIV reports the long term cap gains as one line item for all shares,

[MaggieMae11]

As others have asked, does this mean that any dividend reinvestments since 2011 can be documented on the AZ Tax Form as a "gain or loss from assets acquired after December 31,2011"?  AND dividend reinvestments before December 31, 2011, can NOT be included in that capital gain calculation?  

I have dividend reinvestment capital gains that are solely the activity of the fund manager.  I did not receive any cash in hand or sell any investments.  My dividends all roll over back into the fund.  I purchased the fund in 2007, but have had the dividends reinvested since the purchase.  

[JulieS]

Yes, only the gains, or losses, due to assets purchased after December 31, 2011 get this special tax treatment in Arizona.

Here is the line instruction that applies to this deduction:

"You may subtract 25% (.25) of any net long-term capital gain included in your federal adjusted gross income that is derived from an investment in an asset acquired after December 31, 2011." -AZDOR

The instruction book has a worksheet to calculate the deduction on page 30, but there is no advice for how to determine the amount of your investments acquired after that date.

It would probably be best to work with your statements or your broker to determine how much of your funds were acquired before December 31, 2011 since that amount won't change unless you sell your older investments.

Click here to see the AZ 140 booklet.

[DiddlyD]

Inherited assists are not valued for purpose of determining capital gains has a stepped up basis which means it's basis is what the value was at the time the inheritance was received not from the original purchase date form the father or who ever willed or the estate sold.