Sales of Capital Assets Reported on Individual Income Tax Returns, 1997 - Statistical Data Included

Statistics of Income Bulletin, Summer, 2001 by Janette Wilson

Data Release

The Taxpayer Relief Act of 1997 reduced the tax rates that applied to net long-term capital gains from the sale, exchange, or conversion of capital assets. The new rates applied only to transactions that took place after May 6, 1997.

Net capital gains (i.e., net of capital losses) increased by more than 40 percent for Tax Year 1997, increasing by over $100 billion to $360.7 billion from Tax Year 1996 amounts. Capital gain distributions from mutual funds increased by 82.6 percent for Tax Year 1997 to $44.9 billion from Tax Year 1996 [1].

Capital gains from sales of corporate stock accounted for approximately 38 percent of total net capital gains. The next largest sources of gains were pass-through entities, representing about 26 percent, and capital gain distributions at more than 12 percent of total net capital gains (see Figure A).

Figure A

Net Capital Gains, by Source and Type of Asset, 1997

$360.7 billion

Other             62.2%
Corporate stock   37.8%

Note: Table made from pie chart.

$224.3

Partnership S corporation,
  and estate or trust interest    5.6%
Other assets                     12.5%
Capital gain distributions       20.0%
Business property and
  residences                     14.2%
Mutual funds                      5.4%
Pass-through                     42.2%

Note: Table made from pie chart.

NOTES: Other assets include U.S. Government and State and local
Government obligations, bonds, options and futures, livestock,
timer, involuntary conversions, land, and unidentifiable. Detail
may not add to totals because of rounding.

For Tax Year 1997, the total sales price of all assets sold was approximately $2.0 trillion. The largest source of sales of capital assets was from corporate stock sales, which represented about $1.1 trillion or 55 percent of total sales, and about 50 percent of the total number of transactions for 1997. About 60 percent of all stock transactions were short-term for 1997. This compares to just 29 percent for 1985, the last cross-section sales of capital assets study.

Changes in the Tax Law

The maximum long-term capital gain tax rate for sales or exchanges of property after May 6, 1997, was reduced from 28 percent to 20 percent (10 percent for gains otherwise taxable at the 15-percent rate). Capital gains realized between May 7, 1997, and July 28, 1997, were taxed at the lower long-term capital gain rate if held for over 12 months. Capital gains realized after July 28, 1997, were taxed at the long-term capital gain rate if held for 18 months or more. This 18-month holding period requirement was later repealed, effective with gains realized after December 31, 1997.

Most other long-term gains were still taxed at a maximum of 28 percent. Special rules applied to capital gains on collectibles, capital gains attributable to prior deductions of depreciation expense on certain real estate (Section 1250 property), and capital gains on certain small business stock.

Capital gains on collectibles were taxed at ordinary tax rates, subject to a maximum rate of 28 percent. Depreciation on Section 1250 property (other than the accelerated depreciation already recaptured at ordinary rates) was recaptured by taxing it at ordinary tax rates, subject to a maximum rate of 25 percent.

Taxpayers who sold their main homes after May 6, 1997, could exclude up to $250,000 of capital gain on principal residences ($500,000 for married taxpayers filing jointly). The residence must have been owned and occupied as the taxpayer's principal residence for periods aggregating 2 years or more during the 5-year period ending on the date of sale or exchange. Only one eligible sale could be made in any 2-year period (excluding pre-May 7, 1997, sales). The maximum exclusion was prorated if the 2-year holding period was not met due to employment, health, or certain other unforeseen circumstances that may be provided for in regulations.

Detailed Tables

Tables 1 through 4 present detailed data on sales of capital assets for 1997. Tables 1 and 2 show aggregated data from transactions reported on the following tax forms: Schedule D (Capital Gains and Losses and Reconciliation of Forms 1099B); Form 2119 (Sale or Exchange of Principal Residence); Form 4797 (Gains and Losses from Sales or Exchanges of Assets Used in a Trade or Business and Involuntary Conversions); Form 6252 (Installment Sales); Form 8824 (Like-Kind Exchanges); Form 4684 (Casualties and Thefts); Form 2439 (Undistributed Long-Term Capital Gains); and Form 6781 (Gains and Losses from Section 1256 Contracts and Straddles). Capital gains and losses reported on other forms and carried to Schedule D were also included. Tables 3 and 4 present data on holding periods and months of sale.

Table 1 shows the distribution of gain and loss transactions by asset type and by whether they were treated as short-term or long-term. Capital gain distributions and pass-through gains from partnerships, S corporations, and estates and trusts were counted as one transaction even though the gain or loss may be from more than one entity. Taxpayers reported 68.6 million long-term transactions and 54.1 million short-term transactions for 1997. Sales of corporate stock were the largest category of both short-term and long-term transactions whether measured by the number of transactions, amount of net gain or loss, or sales price. Sales of corporate stock accounted for $1.1 trillion of the total sales price of all assets of approximately $2.0 trillion. Net capital gains from sales of corporate stock totaled $136.4 billion. Pass-through net gains or losses were the second largest category when measured by net gain or loss with $94.7 billion, followed by capital gain distributions with approximately $44.9 billion. The second largest category with respect to sales price was mutual funds. The total sales price amount was $189.7 billion, $103.7 billion from short-term transactions and $86.0 billion from long-term transactions.