(Revised 06/01/04 ML2921)
Capital gains from last year are counted as income only if they are anticipated to recur in the current year.
Proceeds from the sale of capital goods or equipment are calculated in the same manner as a capital gain for Federal income taxes.
The formula for calculating proceeds from the sale of capital goods or equipment is: sale price, minus the acquisition price which includes improvements and sales expenses such as a broker’s fees and commissions, plus any amount depreciated for federal income tax purposes.
Example:
A farmer purchased a tractor for $12, 000 five years ago and sold the tractor for $10,000. During the five-year period of ownership, he depreciated the tractor at a rate of $1,200 per year. The capital gain is computed as follows:
$ 10,000 sale price
- 12,000 acquisition price
+ 6,000 depreciated amount ($1200 per year x five years)
$ 4,000 actual gain from the sale of equipment
Capital gains resulting from the sale of land, buildings, or equipment that were not anticipated in the current year, are not counted if they were sold the year before the household applies.
Because net losses from prior periods are not an allowable deduction, net operating loss carryovers from prior years shown on current income tax forms cannot be used to offset self-employment income.
