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Form 561S - Page 2

Oklahoma Capital Gain Deduction for the Nonresident Shareholder

Whose Income is reported on Form 512-S, Part 1

Title 68 O.S. Section 2358 and Rule 710:50-15-48

General Information

Taxpayers can deduct qualifying gains receiving capital gain treatment which are included in Federal income.

“Qualifying gains receiving capital treatment” means the amount of net capital gains, as defined under Internal

Revenue Code Section 1222(11). The qualifying gain must result from:

1. the sale of real or tangible personal property located within Oklahoma that has been owned for at least five

uninterrupted years prior to the date of the transaction that gave rise to the capital gain;

2. the sale of stock or an ownership interest in an Oklahoma company, limited liability company, or partnership

where such stock or ownership interest has been owned for at least three uninterrupted years (two for

individuals) prior to the date of the transaction that gave rise to the capital gain; or

3. the sale of real property, tangible personal property or intangible personal property located within Oklahoma

as part of the sale of all or substantially all of the assets of an Oklahoma company, limited liability company,

or partnership where such property has been directly or indirectly owned by such entity or owned by the

owners of such entity, and used in or derived from such entity for a period of at least three uninterrupted

years (two for individuals) prior to the date of the transaction that gave rise to the capital gain.

An Oklahoma company, limited liability company, or partnership is an entity whose primary headquarters has been

located in Oklahoma for at least three uninterrupted years prior to the date of sale.

Draft

Pass-through entities...

Capital gain from qualifying property, as described above, held by a pass-through entity is eligible for the Oklahoma

8/12/09

capital gain deduction, provided the person has been a member of the pass-through entity for an uninterrupted

period of the applicable three (two for individuals) or five years and the pass-through entity has held the asset for not

less than the applicable three (two for individuals) or five uninterrupted years prior to the date of the transaction that

created the capital gain. The type of asset sold, as shown in 1-3 above, determines whether the applicable number

of uninterrupted years is three (two for individuals) or five. The pass-through entity must provide supplemental

information to the member identifying the pass-through of qualifying capital gains.

Installment sales...

Qualifying gains included in Federal distributable income for the current year which are derived from installment

sales are eligible for exclusion, provided the appropriate holding periods are met.

Specific Instructions

Note: Complete a separate Form 561S for each nonresident shareholder whose income is reported on Form 512-S,

Part 1. The total from all Forms 561S will be entered on Form 512-S, Part 1, line 1b.

Lines 1-4 are used to determine the qualifying Oklahoma net capital gain of a nonresident shareholder whose

income is reported on Form 512-S, Part 1; those who did not file a nonresident shareholder agreement (Form 512-

SA). Based on the type of asset sold, the nonresident must have been a shareholder of the S corporation for an

uninterrupted period of the applicable three (two for individuals) or five years. The qualifying Oklahoma net capital

gain is the total of such nonresident shareholder’s share of long-term gains from qualifying Oklahoma property

minus the long-term losses from qualifying Oklahoma property which were allocated or apportioned to Oklahoma.

Line 5 is the total of the nonresident shareholder’s share of the net capital gain. Net capital gain is the excess of

the net long-term capital gain over the net short-term capital loss allocated or apportioned to Oklahoma for the

nonresident whose income is reported on Form 512-S, Part 1. The Oklahoma Capital Gain Deduction cannot

exceed this amount.

Form 561s Draft - Oklahoma Capital Gain Deduction For The Nonresident Shareholder - 2009 Page 2

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