Table of Contents
If you dispose of business property, you may have a gain or loss that you report on Form 1040. However, in some cases you may have a gain that is not taxable or a loss that is not deductible. This chapter discusses whether you have a disposition, how to figure the gain or loss, and where to report the gain or loss.
544 Sales and Other Dispositions of Assets
Form (and Instructions)
4797 Sales of Business Property
Sch D (Form 1040) Capital Gains and Losses
See chapter 12 for information about getting publications and forms.
A disposition of property includes the following transactions.
You sell property for cash or other property.
You exchange property for other property.
You receive money as a tenant for the cancellation of a lease.
You receive money for granting the exclusive use of a copyright throughout its life in a particular medium.
You transfer property to satisfy a debt.
You abandon property.
Your bank or other financial institution forecloses on your mortgage or repossesses your property.
Your property is damaged, destroyed, or stolen, and you receive property or money in payment.
Your property is condemned, or disposed of under the threat of condemnation, and you receive property or money in payment.
For details about damaged, destroyed, or stolen property, see Pub. 547. For details about other dispositions, see chapter 1 in Pub. 544.
Business or investment property.
Table 3-1. How To Figure a Gain or Loss
|IF your...||THEN you have a...|
|Adjusted basis is more than the amount realized||Loss.|
|Amount realized is more than the adjusted basis||Gain.|
Basis, adjusted basis, amount realized, fair market value, and amount recognized are defined next. You need to know these definitions to figure your gain or loss.
Nontaxable exchanges , earlier. Also, you cannot deduct a loss from the disposition of property held for personal use.
You must classify your gains and losses as either ordinary or capital gains or losses. You must do this to figure your net capital gain or loss. Generally, you will have a capital gain or loss if you dispose of a capital asset. For the most part, everything you own and use for personal purposes or investment is a capital asset.
Certain property you use in your business is not a capital asset. A gain or loss from a disposition of this property is an ordinary gain or loss. However, if you held the property longer than 1 year, you may be able to treat the gain or loss as a capital gain or loss. These gains and losses are called section 1231 gains and losses.
For more information about ordinary and capital gains and losses, see chapters 2 and 3 in Pub. 544.
If you have a capital gain or loss, you must determine whether it is long term or short term. Whether a gain or loss is long or short term depends on how long you own the property before you dispose of it. The time you own property before disposing of it is called the holding period.
Table 3-2. Do I Have a Short-Term or Long-Term Gain or Loss?
|IF you hold the property...||THEN you have a...|
|1 year or less||Short-term capital gain or loss.|
|More than 1 year||Long-term capital gain or loss.|
For more information about short-term and long-term capital gains and losses, see chapter 4 in Pub. 544.
Report gains and losses from the following dispositions on the forms indicated. The instructions for the forms explain how to fill them out.
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