Hawaii Capital Gains and Losses and Built-in Gains

Capital Gains and Losses and Built-in Gains
Schedule D, Form N-35, Rev 2022, Capital Gains and Losses and Built-in Gains
Clear Form

		
STATE OF HAWAII—DEPARTMENT OF TAXATION
	 SCHEDULE D
FORM N-35	
	
	
(REV. 2023)		
	
	
To be filed with Form N-35

Capital Gains and Losses and Built-in Gains

Name	

2023
Federal Employer I.D. No.

PART I — Short-Term Capital Gains and Losses — Assets Held One Year or Less
a.  Kind of property and description
(Example: 100 shares of “Z” Co.)

b.  Date acquired
(mo., day, yr.)

c.  Date sold
(mo., day, yr.)

d. Gross sales
price

e. Cost or other basis,
plus expense of sales

f.  Gain or (loss)
(d minus e)

g. Gain or (loss)
Attributable to Hawaii

	 1

	
	
	
	
	
	

2	
3	
4	
5	
6	
7	

Short-term capital gain from installment sales. (From federal Form 6252.)........................................................... 	
Short-term capital gain or (loss) from like-kind exchanges. (From federal Form 8824.)........................................ 	
Short-term capital gain from stock acquired through stock options from qualified high technology businesses.... 	
Add lines 1, 2, 3, and 4. Enter here....................................................................................................................... 	
Tax on short-term gain included on line 21 below. (Enter same amount in cols. f and g.)..................................... 	
Net short-term capital gain or (loss). Line 5 minus line 6. Enter this amount here and on Form N-35,
Schedule K, line 7 or line 10................................................................................................................................... 	

2
3
4
5
6

Long-term capital gain from installment sales. (From federal Form 6252.)............................................................ 	
Long-term capital gain or (loss) from like-kind exchanges. (From federal Form 8824.)......................................... 	
Capital gain distributions........................................................................................................................................ 	
Long-term capital gain from stock acquired through stock options from qualified high technology businesses.... 	
Add lines 8, 9, 10, 11, and 12. Enter here............................................................................................................. 	
Tax on long-term gain included on line 21 below. (Enter same amount in cols. f and g.)....................................... 	
Net long-term capital gain or (loss). Line 13 minus line 14. Enter this amount here and on
Form N-35, Schedule K, line 8 or line 10............................................................................................................... 	

9
10
11
12
13
14

PART II — Long-Term Capital Gains and Losses — Assets Held More Than One Year

(	) (	)

7

	 8

	 9	
	 10	
	 11	
	 12	
	 13	
	 14	
	 15	

PART III — Built-in Gains Tax (See Instructions before completing this part.)
	 16	
	 17	
	 18	
	 19	
	 20	
	 21	

(	) (	)

15

Excess of recognized built-in gains over recognized built-in losses. (See Instructions and attach computation schedule.)...................	
Taxable income. (See Instructions and attach computation schedule.)..................................................................................................	
Net recognized built-in gain—Enter smaller of line 16 or line 17. (See Instructions.).............................................................................	
IRC section 1374(b)(2) deduction...........................................................................................................................................................	
Subtract line 19 from line 18. (If zero or less, enter zero here and on line 21.).......................................................................................	
Enter 6.4% of line 20.  Enter here and on Form N-35, page 2, line 22b.................................................................................................	

Purpose of Schedule

Schedule D (Form N-35) is used by S corporations to report sales or exchanges of capital assets
and gains on distributions to shareholders of appreciated assets that are capital assets (hereafter referred to as distributions).  In addition, this schedule
is intended to partition the “flow-through” of an S corporation’s net capital gain to its shareholders and to
attribute the gain applicable to Hawaii sources.  It will

directly assist the shareholders of the corporation in
properly reporting such gains for the period.
Generally, if the corporation has net recognized
built-in gain as defined in section 1374(d)(2) on assets attributable to Hawaii, it is liable for the built-in
gains tax. Assets are attributable to Hawaii if they
are physically located in Hawaii, are used in a Hawaii business, or if, in the case of intangible assets,
the S corporation has its commercial domicile in Hawaii.   The tax is figured in Part III of Schedule D.  

16
17
18
19
20
21

Sales, exchanges, and distributions of property other than capital assets, including property used in a
trade or business, involuntary conversions (other
than casualties or thefts), and gain from the disposition of an interest in oil, gas, or geothermal property should be reported on Schedule D-1, Sales of
Business Property, see the instructions for Schedule
D-1.   If property is involuntarily converted because
of a casualty or theft, use federal Form 4684, Casualties and Thefts.

FORM N-35
SCHEDULE D (REV. 2023)

N35SCHD_I 2023A 01 VID01

ID NO 01

SCHEDULE D (FORM N-35)		
(REV. 2023)		

INSTRUCTIONS

Section references are to the Internal Revenue
Code, unless otherwise noted.
NOTE: The special federal election for capital
assets acquired in tax years beginning before
January 1, 2001 (election under section 311 of
the Taxpayer Relief Act of 1997) was not available for Hawaii tax purposes.

Capital Asset

Each item of property the corporation held
(whether or not connected with its trade or business) is a capital asset except:
-	 Stock in trade or other property included in inventory or held mainly for sale to customers.
-	 Accounts or notes receivable acquired in the ordinary course of the trade or business for services
rendered or from the sale of stock in trade or other property held mainly for sale to customers.
-	Depreciable or real property used in the trade or
business.
-	Certain copyrights, literary, musical, or artistic
compositions; letters or memorandums; or similar property. See section 1221(a)(3).
-	 U.S. Government publications, including the Congressional Record, that the corporation received
from the Government, other than by purchase
at the normal sales price, or that the corporation
got from another taxpayer who had received it in
a similar way, if the corporation’s basis is determined by reference to the previous owner.
-	 Certain commodities derivative financial instruments held by a dealer. See section 1221(a)(6).
-	Certain hedging transactions entered into in the
normal course of the trade or business. See section 1221(a)(7).
-	 Supplies regularly used in the trade or business.

Parts I and II

Generally, report sales and exchanges (including like-kind exchanges) even if there is no gain or
loss. In Part I, report the sale, exchange, or distribution of capital assets held one year or less. In
Part II, report the sale, exchange, or distribution of
capital assets held more than one year. Use the
trade dates for the dates of acquisition and sale
of stocks and bonds on an exchange or over-thecounter market.
For more information, see federal Publication
544, Sales and Other Dispositions of Assets.
Exchange of like-kind property.—Complete
and attach federal Form 8824, Like-Kind Exchanges, to the corporation’s return for each exchange.
Also, report the exchange of like-kind property on
Schedule D or on Schedule D-1, whichever applies.
Report it even if no gain or loss is recognized when
business or investment property is exchanged for
property of like-kind. For exceptions, see federal
Publication 544.

Enter the gain or loss from federal Form 8824
in column (f) and in column (g) if the property traded was Hawaii property. Write in the top margin
of Schedule D “Like-Kind Exchange” or if the exchange involved a related party, write “Related Party Like-Kind Exchange.”

Special Rules for the Treatment of
Certain Gains and Losses

All income earned and proceeds derived from
stock options or stock, including stock issued
through the exercise of stock options or warrants,
from a qualified high technology business or from
a holding company of a qualified high technology
business by an employee, officer or director of the
qualified high technology business, or investor who
qualifies for the high technology business investment tax credit is excluded from income. Sales of
this stock should be reported on line 1 or line 8,
as appropriate. Total capital gains are then reduced
by the qualifying capital gains on line 4 or line 12.
Capital losses on the sale of this stock do not need
to be added back to income.

How to Determine the Cost or Other
Basis of the Property

In determining gain or loss, the basis of property is generally its cost (see section 1012 and related
regulations). Special rules for determining basis are
provided in sections in subchapters C, K, O, and P
of the Code. These rules may apply to the corporation on the receipt of certain distributions with respect to stock (section 301), liquidation of another
corporation (section 334), transfer to another corporation (section 358), transfer from a shareholder or reorganization (section 362), bequest (section
1014), contribution or gift (section 1015), tax-free
exchange (section 1031), involuntary conversion
(section 1033), certain asset acquisitions (section
1060), or wash sale of stock (section 1091). Attach
an explanation if you use a basis other than actual
cash cost of the property.
If the corporation is allowed a charitable contribution deduction because it sold property to a
charitable organization, figure the adjusted basis
for determining gain from the sale by dividing the
amount realized by the fair market value and multiplying that result by the adjusted basis.
See section 852(f) for the treatment of certain
load charges incurred in acquiring stock in a mutual fund with a reinvestment right.
Before making an entry in column (e), increase
the cost or other basis by any expense of sale, such
as broker’s fees, commissions, option premiums,
and state and local transfer taxes.

Part III—Built-In Gains Tax

Section 1374 provides for a tax on built-in gains
recognized during the recognition period and on
built-in gains attributable to any asset the corporation acquired with a basis determined by reference

PAGE 2
to its basis (or the basis of any other property) in
the hands of a C corporation. See section 1374(d)
(8)(A) and (B) for important details and modifications for the latter.

Transitional Relief from Built-In Gains
Tax

See the instructions for federal Schedule D
(Form 1120S) for a discussion of special transitional relief from the built-in gains tax for qualified corporations.
Line 16—Enter the amount that would be the taxable income of the corporation for the tax year if
only recognized built-in gains (including any carryover of gain under section 1374(d)(2)(B)) attributable to Hawaii and recognized built-in losses
attributable to Hawaii were taken into account.
See the instructions for federal Schedule D
(Form 1120S) for definitions of recognized built-in
gain and recognized built-in loss.
A qualified corporation must show on an attachment to Schedule D its total net recognized built-in
gain attributable to Hawaii and also list separately the gain or loss attributable to Hawaii that is: (1)
gain or loss from capital assets held six months or
less and (2) gain or loss from assets for which the
disposition results in ordinary income or loss. A
nonqualified corporation must show on an attachment its total net recognized built-in gain attributable to Hawaii and list separately any capital gain
or loss and ordinary gain or loss.
Line 17—Figure taxable income by completing
lines 1 through 10 and 1 through 12 of Schedule J
of Form N-30, Hawaii Corporation Income Tax Return. Enter the amount from Schedule J, line 12 that
is attributable to Hawaii on line 17 of Schedule D.
Attach to Schedule D the Form N-30 computation
or other worksheet used to figure taxable income.
Line 18—Do not enter on line 18 more than the excess (if any) of the net unrealized built-in gain attributable to Hawaii over the net recognized built-in
gain attributable to Hawaii for prior years. This is
the amount that should have been entered in item
7, Schedule B, on Form N-35, page 2. See section
1374(c)(2). If, for any tax year, the amount on line
16 exceeds the taxable income on line 17, the excess is treated as a recognized built-in gain attributable to Hawaii in the succeeding tax year. This
carryover provision applies only in the case of an
S corporation that made its election to be an S corporation on or after March 31, 1988. See section
1374(d)(2)(B).
Line 19—Enter the section 1374(b)(2) deduction.
Generally, this is any net operating loss carryforward attributable to Hawaii or capital loss carryforward (to the extent of net capital gain included in
recognized built-in gain for the tax year) attributable
to Hawaii arising in tax years for which the corporation was a C corporation. For details, see section 1374(b)(2).