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I understand that one is entitled to long term capital gains

treatment under §1235 for royalties...
I understand that one is entitled to long term capital gains treatment under §1235 for royalties received from a University, in exchange for all substantial rights in a patent to invention. I wonder where he can enter the royalty amount on Form 1040 schedule D or on any other schedule or form? Thanks.
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9/12/2013
Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16,581
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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Megan C :

Hello! I am a CPA here to assist you with your tax questions. My goal is to provide you with excellent service today.

Megan C :

How are you today?

Megan C :

You are going to need form 8949 to input this into schedule D. You will put "transfer of patent rights" as the description of the asset, with a cost basis of 0. This will get your payments taxed as a long term capital gain.

Megan C :

Form 8949 feeds schedule D

Megan C :

Make sure you put this in part II

Megan C :

If you put it in part I it will be taxed as ordinary income, and you don't want that so make sure you put it to part II

Customer:

This is quick! So I will need to fill out Part II of form 8949. I should check box (C) and do a separate Part II from the one for stocks, right? Thanks!

Megan C :

Yes, that is correct - check box C because this is not reported on form 1099-B

Megan C :

This will come on a 1099-MISC

Customer:

Probably the last question about this issue. If I submit a 1040X, I should send the amended 8949 and schedule D along with the 1040X?

Megan C :

Yes, you would submit any form that changes along with the 1040X

Customer:

Thank you. XXXXX get a record of this so that I can go back to your answers later?

Megan C :

Yes, you can bookmark this page. But, before you leave please rate my response as "excellent" so that I may receive credit for assisting you today

Megan C :

You also get an email copy once you rate and close the chat

Megan C
Megan C, Certified Public Accountant (CPA)
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Satisfied Customers: 16,581
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