J.K. Lasser's Small Business Taxes 2022

CHAPTER 5Capital Gains and Losses

1. What Are Capital Gains and Losses?
2. Tax Treatment of Capital Gains and Losses for Pass-Through Entities
3. Tax Treatment of Capital Gains for C Corporations
4. Loss Limitations
5. Sales of Business Interests
6. Opportunity Zone Investments
7. Special Situations

Companies may sell assets other than inventory items. These sales may result in gains or losses that are classified as capital gains or losses. Similarly, companies may exchange assets, also producing capital gains or losses unless tax-free exchange rules apply. Furthermore, owners may sell their interests in the business for gain or loss.

Capital gains generally are treated more favorably than other types of income. However, C corporations do not realize any significant tax benefit from capital gains. What's more, capital losses are subject to special limitations.

The treatment of gains and losses from Section 1231 property and income resulting from depreciation recapture are discussed in Chapter 6.

For further information about capital gains and losses, see IRS Publication 537, Installment Sales; IRS Publication 544, Sales and Other Dispositions of Assets; and IRS Publication 550, Investment Interest and Expenses.

What Are Capital Gains and Losses?

The tax law generally looks more favorably on income classified as capital gains than on other types of income—at least for pass-through entities. On the flip side, the tax law provides special treatment for capital losses. To understand how capital ...