Taxes And The 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

    These are some examples of tangible property:

    • Vehicles
    • Machinery
    • Equipment
    • Furnishings
    • Livestock
  • Intangible property — This is property that doesn’t physically exist or have intrinsic value. The value of intangible personal property lies in having the rights to it. 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.

To learn more, see Publication 544: Sales and Other Dispositions of Assets at www.irs.gov.