26 CAR § 100-153. Computing capital gains and losses — Arkansas Code § 26-51-815

(a) Computing capital gains and losses — Generally — Arkansas Code § 26-51-815(a). (1) With respect to capital gains and losses realized or incurred during tax years beginning after December 31, 1990, the following Internal Revenue Code and regulations shall apply: (A) I.R.C. §§ 1211 – 1237 and 1239 – 1257, as in effect on January 1, 1997; (B) Corresponding regulations promulgated by the United States Secretary of the Treasury as in effect on January 1, 1997; and (C) Any other provisions of the Internal Revenue Code and regulations necessary for interpreting and implementing the above cited code sections as in effect on January 1, 1997. (2) However, the provisions of this subsection shall not apply to Subchapter C corporations as defined in I.R.C. § 1361 as in effect on January 1, 1997. (b) Computation of tax — Arkansas Code § 26-51-815(b). (1) If a taxpayer has a net capital gain for a given tax year, the tax on such capital gain shall not exceed the sum of: (A) A tax computed at the rates and in the same manner as if this subsection had not been enacted on the greater of: (i) Taxable income reduced by the amount of the net capital gain; or (ii) The amount of taxable income taxed at a rate below six percent (6%); plus (B) A tax of six percent (6%) on the amount of taxable income in excess of the amount determined under subdivision (b)(1)(A) of this section, above. (2) I.R.C. § 1222 defines "net capital gain" as the excess of the net long-term capital gain for the taxable year over the net short-term capital loss for such year. Example 1: Mr. Jones, a single taxpayer with no dependents, reported a net taxable income of forty thousand dollars ($40,000) after itemized deductions. The income and deductions comprised the following: Wages $ 30,000.00 Interest $ 500.00 Net Capital Gain $ 15,000.00 Total Income $ 45,500.00 Less Itemized Deductions ($ 5,500.00) Net Taxable Income $ 40,000.00 Mr. Jones' tax liability is calculated as follows: ORDINARY INCOME: Wages $ 30,000.00 Interest $ 500.00 Total Ordinary Income $ 30,500.00 Less Itemized Deductions ($ 5,500.00) Subtotal #1 $ 25,000.00 Tax on Subtotal #1 (Using the Itemized Deduction Tax Table) $ 1,084.00 Net Capital Gain Income $ 15,000.00 Tax on Net Capital Gains (Maximum tax rate of 6%) $ 900.00 TOTAL TAX LIABILITY $ 1,984.00 (3) Reminder. (A) Normal Arkansas tax rates are graduated from one percent (1%) to six percent (6%) up to twenty-five thousand dollars ($25,000) and seven percent (7%) for income twenty-five thousand dollars ($25,000) and above. (B) The maximum tax rate for net capital gains cannot exceed six percent (6%). Example 2: Same as Example 1 but the wages equal fifteen thousand dollars ($15,000) and net taxable income equals twenty-five thousand dollars ($25,000). Mr. Jones' tax liability is calculated as follows: ORDINARY INCOME: Wages $ 15,000.00 Interest $ 500.00 Total Ordinary Income $ 15,500.00 Less Itemized Deductions ($ 5,500.00) Subtotal #1 $ 10,000.00 Since Subtotal #1 is less than twenty-five thousand dollars ($25,000), add the capital gain up to this amount. Capital Gains $ 15,000.00 TOTAL TAX LIABILITY $ 1,984.00 Example 3: Same as Example 1 but wages equal fifty thousand dollars ($50,000) and net taxable income equals sixty thousand dollars ($60,000). Mr. Jones' tax liability is calculated as follows: ORDINARY INCOME: Wages $ 50,000.00 Interest $ 500.00 Total Ordinary Income $ 50,500.00 Less Itemized Deductions ($ 5,500.00) Subtotal #1 $ 45,000.00 Tax on Subtotal #1 (Using the Itemized Deduction Tax Table) $ 2,484.00 Capital Gains $ 15,000.00 Tax on Long Term Capital Gains (Maximum tax rate of 6%) $ 900.00 TOTAL TAX LIABILITY $ 3,384.00 (c) Exclusion of small business stock from gain — Arkansas Code § 26-51-815(c). I.R.C. § 1202, as in effect on January 1, 1995, regarding the exclusion from gain of certain small business stock, is adopted for the purpose of computing Arkansas income tax liability.