Figuring Capital Gains and Losses
Reporting Property Sales
Property is classified according to its nature and your purpose for holding it. If you sell property at a gain, the applicable tax rate depends on the classification of the property before the sale. The tax treatment of gains and losses are not the same for all types of property.
- Long-term capital gains are generally taxed at lower rates than those imposed on ordinary income and are applied to gain from the sale of an asset held for one year or longer. Short-term capital gains or property held less than a year are subject to regular income tax rates.
- Loss deductions are allowed on the sale of investment property and business property but not personal assets.
- Most assets used in business are considered Section 1231 assets, and capital gain or ordinary loss treatment may apply depending on the result of a netting computation made on Form 4794.
Sales of capital assets must generally be reported on Schedule D of Form 1040, and lower capital gains rates are applied on the Qualified Dividends and Capital Gains Tax Worksheet in the Form 1040 instructions.
