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Sale of Business Property

If you sold business-use property during the year, you had a gain or a loss on the sale. Complete and file Form 4797: Sale of Business Property.

Business-use property includes:

  • Rental property, like an apartment or a house
  • The part of your home you used as a home office if it's not connected to the house
  • Vehicles or equipment that you both:
    • Use for business or investment purposes
    • Claim depreciation for

Reporting a disposition of property

You usually report a disposition of business-use property in the year you dispose of the property. A disposition occurs when you do any of these to your business property:

  • Sell
  • Exchange
  • Retire
  • Abandon
  • Involuntarily convert
  • Destroy

Classifying business assets

Property classifications affect how the gains or losses on the property sale are taxed. Property is classified as either of these:

  • Personal property -- This can be either of these:
    • Tangible property that:
      • Physically exists
      • Has intrinsic value
      • Is movable
      Ex:
      • Vehicles
      • Machinery
      • Equipment
      • Furnishings
      • Livestock
    • Intangible property that doesn't physically exist or have intrinsic value. The value of intangible personal property is in the rights conveyed. Ex:
      • Patents
      • Copyrights
      • Goodwill
  • Real property, like:
    • Land
    • Buildings
    • Improvements to the land and its buildings
    • Component parts of the land’s buildings

If you have a loss on the sale of business-use property, it isn’t a capital loss. So, you can deduct the entire loss amount from income. You can only deduct $3,000 of net capital loss from income.

However, if you have a gain on the sale of tangible personal property, you’re taxed two ways:

  • Property held long-term is taxed as a capital gain and qualifies for special rates.
  • Part is taxed as ordinary income.

If you'd like to learn more, see Publication 544: Sales and Other Dispositions of Assets at www.irs.gov.

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