1. Property is classified according to its nature and your purpose for holding it; see 5.2, Table 5-1, and holding period rules at 5.3 and 5.9–5.12.

2. Sales of capital assets must generally be reported on Form 8949, with Part I used for short-term gains and losses and Part II for long-term gains and losses (5.3). You must indicate on Form 8949 if you received a Form 1099-B from a broker showing your basis in securities sold. You may need to file multiple Forms 8949 depending on how basis was reported on Form 1099-B. Total amounts for sales price and basis are transferred from Form 8949 to Schedule D of Form 1040. On Schedule D you net short-term and long-term transactions to figure your net gain or loss for the year and, if you have net long-term gain, you are directed to the appropriate IRS worksheet for computing your tax liability taking into account the favorable capital gain rates, as discussed in the next paragraph. Filing Form 8949 or Schedule D may not be necessary if your only capital gains are from a mutual fund or REIT (32.8).

3. If you sell property at a gain, the applicable tax rate depends on the classification of the property (see Table 5-1) and, in the case of capital assets, the period you held the property before sale. A capital gain is long term if you held the asset for more than one year, short-term if you held it for one year or less. Short-term capital gains that are not offset by short- or long-term losses are subject to regular income tax rates.

4. Loss deductions are allowed on the sale of investment and business property but not personal assets; see Table 5-1. Capital loss deductions in excess of capital gains are limited to $3,000 annually, $1,500 if married filing separately; see the details on the capital loss limitations later in this Chapter (5.4 − 5.5).