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
- Tangible property that:
- 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. Learn more about calculate capital gains on home sale here.
- Part is taxed as ordinary income.
To learn more, see Publication 544: Sales and Other Dispositions of Assets at www.irs.gov.
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