You must classify your gains and losses as either ordinary or capital (and your capital gains or losses as either short-term or long-term). You must do this to figure your net capital gain or loss.
For individuals, a net capital gain may be taxed at a lower tax rate than ordinary income. See Capital Gains Tax Rates in chapter 4. Your deduction for a net capital loss may be limited. See Treatment of Capital Losses in chapter 4. taxmap/pubs/p544-011.htm#en_us_publink100072477
Generally, you will have a capital gain or loss if you sell or exchange a capital asset. You also may have a capital gain if your section 1231 transactions result in a net gain.taxmap/pubs/p544-011.htm#en_us_publink100072478
Section 1231 transactions are sales and exchanges of property held longer than 1 year and either used in a trade or business or held for the production of rents or royalties. They also include certain involuntary conversions of business or investment property, including capital assets. See Section 1231 Gains and Losses in chapter 3 for more information.taxmap/pubs/p544-011.htm#TXMP4dbda6a6
You may want to see:
Publication 550 Investment Income and Expenses 954 Tax Incentives for Distressed Communities Form (and Instructions) Schedule D (Form 1040): Capital Gains and Losses 4797: Sales of Business Property 8594: Asset Acquisition Statement Under Section 1060
See chapter 5 for information about getting publications and forms.taxmap/pubs/p544-011.htm#en_us_publink100072479
Almost everything you own and use for personal purposes or investment is a capital asset. For exceptions, see Noncapital Assets, later.
The following items are examples of capital assets.
- Stocks and bonds.
- A home owned and occupied by you and your family.
- Timber grown on your home property or investment property, even if you make casual sales of the timber.
- Household furnishings.
- A car used for pleasure or commuting.
- Coin or stamp collections.
- Gems and jewelry.
- Gold, silver, and other metals.
Generally, property held for personal use is a capital asset. Gain from a sale or exchange of that property is a capital gain. Loss from the sale or exchange of that property is not deductible. You can deduct a loss relating to personal-use property only if it results from a casualty or theft. taxmap/pubs/p544-011.htm#en_us_publink100072481
Investment property (such as stocks and bonds) is a capital asset, and a gain or loss from its sale or exchange is a capital gain or loss. This treatment does not apply to property used to produce rental income. See Business assets, later, under Noncapital Assets. taxmap/pubs/p544-011.htm#en_us_publink100072482
Amounts you receive for the release of a restrictive covenant in a deed to land are treated as proceeds from the sale of a capital asset.