Tax Consequences - Tax Consequences Of The Disposition Of Property

Capital Assets – Section 1221

Capital assets can be classified into four separate categories for the ease of determining how taxable gains and losses are taxed.  

Marketable Investment Assets Stocks, bonds, mutual funds, land, stamps, coins and gems held for investment purposes.


Tax treatment of sales – Capital gains and capital losses
Gains and Losses can be used to offset each other, and the taxpayer can take an additional $3,000 loss per year ($1,500 if married filing separately).


Business Inventory – Inventory held for sale to customers and accounts or notes receivable.


Tax treatment of sales – Ordinary income and ordinary losses

Section 1231 Property – Depreciable residential rental property or trucks, autos, machinery, fixtures, computers or equipment used in a business.


Tax treatment of sales – Ordinary income or capital gains/ ordinary loss

Personal Items – Personal residence, jewelry, art, cars, furniture, baseball cards, coins, stamps and other collectibles used for personal use.


Tax treatment of sales – Capital gains/losses are non-deductible
Tax on all or part of the sale of the principal residence can be avoided if all requirements are met.

*Holding period rules will determine preferential tax treatment for most long-term assets over short-term held assets.

Holding Period

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