475-000-338
The term "capital gains" as used by the Internal Revenue Service (IRS) refers to the profit from the sale of capital assets used in a self-employment enterprise.
The method used for calculating capital gains for food stamps is the same method used for federal income taxes. However, less than 100% of capital gains may be counted as taxable income in determining federal income tax but 100% of the capital gains are used in determining food stamp income.
For example, a farmer purchased a tractor for $5,000 in 1980. Over the next four years he claimed $2,400 in depreciation on the tractor. In 1985, he sold the tractor for $3,000.
The process for determining capital gains for food stamps and taxable income for federal income taxes are as follows:
|
1. |
Purchase Price |
$5,000 |
| 2. |
Depreciation Claimed |
-2,400 |
| 3. | Purchase base | $2,600 |
| 4. |
Sale Price |
$3,000 |
| 5. |
Purchase base (from step 3) |
-2,600 |
| 6. |
100 percent capital gains |
$ 400* |
| 7. |
Federal income tax rate |
40% |
| 8. |
Taxable income |
$ 160 |
*The $400 in step 6 is counted as capital gains for food stamps even though only $160 is used as taxable income for federal income tax purposes.
(Rev. February 28,1986)