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taxmap/pubs/p544-011.htm#en_us_publink100072476

Chapter 2
Ordinary 
or Capital 
Gain or Loss(p21)

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taxmap/pubs/p544-011.htm#TXMP7a66f119Introduction

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

Capital gain or loss.(p21)


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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.(p21)
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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

Useful items

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

Capital Assets(p21)


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previous topic occurrence Capital Assets next topic occurrence

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.
taxmap/pubs/p544-011.htm#en_us_publink100072480

Personal-use property.(p22)


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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.(p22)


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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

Release of restriction on land.(p22)


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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.