La. Admin. Code tit. 61 § I-1312

Current through Register Vol. 50, No. 11, November 20, 2024

Section I-1312 - Net Capital Gains Deduction

A. General. R.S. 47:293(9)(a)(xvii) and (10) provide a deduction for resident individuals and nonresident individuals ("taxpayers"), respectively, for net capital gains resulting from the sale or exchange of an equity interest in, or from the sale or exchange of substantially all of the assets of a non-publicly traded corporation, partnership, limited liability company, or other business organization ("business") commercially domiciled in Louisiana.

B. Definitions

Capital Gains from the Sale or Exchange of the Assets of a Business-capital gains from sales and exchanges that are reported on Federal Form 4797-Sales of Business Property, the gains from which are reportable on Schedule D of Federal Form 1040.

Commercial Domicile-the principal place from which the business is directed or managed.

Controlled Entities-with respect to a business or taxpayer

a. a corporation in which more than 50 percent of the value of the outstanding stock is owned (directly or indirectly) by or for the taxpayer or business,

b. a partnership in which more than 50 percent of the capital interest or profits interest is owned (directly or indirectly) by or for the taxpayer or business, and

c. any entity which is a related person to the taxpayer or business pursuant to paragraph (3), (10), (11), or (12) of 26 U.S.C § 267(b).

Equity Interest-an ownership interest in a business that is not publicly traded, such as stock in a corporation, a partnership interest in a partnership, or a membership interest in a limited liability company.

Net Assets-the total value of gross assets after deducting liabilities reportable or would be reportable on the Federal Form 1120, Schedule L if the form was required to be filed at time of sale as total assets at the end of the year.

Net Capital Gains-the amount reported as capital gains on the Federal Form 1040.

Gross Assets-the total value of assets reportable or would be reportable on the Federal Form 1120, Schedule L if the form was required to be filed at time of sale as total assets at the end of the year without regard to location of the assets and excluding any negative values reported on Lines 1-13.

Related Party-

a. a business or taxpayer and all entities which are controlled entities with respect to such business or taxpayer;

b. a business or taxpayer and any trust in which such business or taxpayer (or his spouse) is a beneficiary, unless such beneficiary's interest in the trust is five percent or less of the value of the trust property; and

c. except in the case of a sale or exchange in satisfaction of a pecuniary bequest, a taxpayer who is an executor of an estate and a beneficiary of such estate.

Sale or Exchange of an Equity Interest-a sale or exchange of an equity interest that is reportable on Schedule D of Federal Form 1040-Capital Gains and Losses.

Sale or Exchange of Substantially all of the Assets of a Business-a sale or exchange of assets that leaves the entity unable to carry-on its business. A sale or exchange of assets is presumed to be a sale or exchange of substantially all of the assets of the business if the selling business transfers at least 90 percent of the fair market value of the net assets and at least 70 percent of the fair market value of the gross assets that it held immediately before the transfer.

C. Documentation Requirements

1. Taxpayers claiming the deduction shall submit the following documentation at the time of filing their Louisiana individual income tax return claiming the deduction:

a. a completed Louisiana Form R-6180, Net Capital Gains Deduction Worksheet;

b. documentary evidence of the date the taxpayer acquired an equity interest in the business, such as articles of incorporation or organization, acts of sale or exchange, or donative instruments;

c. a copy of the taxpayer's federal Schedule K-1, if applicable, from the entity from which the gain was derived; and

d. a complete copy of the taxpayer's Federal Form 1040 filed with the IRS for the period in which the gain was recognized, including the Schedule D and any corresponding schedules and forms.

2. In addition to the documentation required by Paragraph 1 above, when the capital gain for which a deduction is being claimed is greater than $250,000, taxpayers shall also submit the following at the time of filing their Louisiana individual income tax return claiming the deduction:

a. copies of the last two returns on which the income from the business was reported. If the gain is derived from a partnership, provide Form IT-565, Louisiana Partnership Return of Income, for the last two years.

b. If the gain is derived from a pass-through entity, provide detailed information on the pass-through structure, such as a complete organizational chart showing each tier between the taxpayer and the entity from which the gain is derived.

c. If the gain is from the sale of assets, the taxpayer shall also provide the following:

i. a depreciation schedule or fixed asset schedule showing a calculation of gross to net asset values; and

ii. an allocation of purchase price among assets as required by IRC Section 1060, and generally reportable on IRS Form 8594.

D. Eligibility Restrictions

1. Net capital gains resulting from the sale or exchange of real property or other immovable assets may qualify for the deduction if more than 50 percent of the real property or other immovable assets are located within Louisiana, provided however, that the income from the related business was subject to Louisiana income tax prior to the sale or exchange.

2. Net capital gains resulting from the sale or exchange of tangible movable assets may qualify for the deduction if during the three years immediately preceding the sale or exchange, the tangible movable assets are located within Louisiana for at least 50 percent of the time in which the assets are in service, provided however, that the income from the related business was subject to Louisiana income tax prior to the sale or exchange. "In service" shall have the same meaning as it does for the purposes of calculating depreciation.

3. Net capital gains from the sale or exchange of an equity interest or from the sale or exchange of substantially all assets shall not qualify for the deduction if the transaction transfers ownership of the interest or assets to a related party.

E. The accrual of refund interest shall be suspended during any period of time that a delay in allowance or approval of the deduction is attributable to the taxpayer's failure to provide information or documentation required herein.

La. Admin. Code tit. 61, § I-1312

Promulgated by the Department of Revenue, Tax Policy and Planning Division, LR 50, exp. 6/29/2024(Emergency), Promulgated by the Department of Revenue, Tax Policy and Planning Division, LR 501673 (11/1/2024).

AUTHORITY NOTE: Promulgated in accordance with R.S. 47:293(9)(a)(xvii) and (10), 47:293.2 and 47:1511.