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 ...

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