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 gains and losses affect your business income you need to know what items are subject to capital gain or loss treatment and how to determine gains and losses.
If you own property used in or owned by your business (other than Section 1231 property discussed in Chapter 6, or Section 1244 stock discussed later in this chapter), gain or loss on the disposition of the property generally is treated as capital gain or loss. Capital gains and losses are gains and losses taken on capital assets.
Most property is treated as capital assets. Excluded from the definition of capital assets are: