Chapter 44

Sales of Business Property

On the sale of business assets, the tax treatment depends on the type of asset sold.

Inventory items: Profits are taxable as ordinary income; losses are fully deductible. Sales of merchandise are reported on Schedule C if you are self-employed or Schedule F if you are a farmer.

Depreciable property, such as buildings, machinery, and equipment: If you sell at a gain, the gain is taxable as ordinary income to the extent depreciation is recaptured (44.1–44.2). Any remaining gain may be treated as capital gain or ordinary income, depending on the Section 1231 computation (44.8). Losses may be deductible as ordinary losses (44.8). Sales are reported on Form 4797. Depreciable business equipment subject to recapture is described as a Section 1245 asset. Depreciable livestock is also a Section 1245 asset. Depreciable realty is generally described as a Section 1250 asset.

Land: If used in your business, capital gain or ordinary income may be realized under the rules of Section 1231 (44.8). If land owned by your business is held for investment, gain or loss is subject to capital gain treatment. Schedule D is used to report the sale of capital assets.

44.1 Depreciation Recaptured as Ordinary Income on Sale of Personal Property

44.2 Depreciation Recaptured as Ordinary Income on Sale of Real Estate

44.3 Recapture of First-Year Expensing

44.4 Gifts and Inheritances of Depreciable Property

44.5 Involuntary Conversions and Tax-Free Exchanges

44.6 Installment Sale of Depreciable Property

44.7 Sale of a Proprietorship

44.8 Property Used in a Business (Section 1231 Assets)

44.9 Sale of Property Used for Business and Personal Purposes

44.10 Should You Trade in Business Equipment?

44.11 Corporate Liquidation

See also:

29.7 Personal and Business Use of a Home

29.9 Loss on Residence Converted to Rental Property

40.27 Filing Schedule F (farm income)