J.K. Lasser's Small Business Taxes 2013: Your Complete Guide to a Better Bottom Line

CHAPTER 5

Capital Gains and Losses

Alert

At the time this book was printed, Congress had not extended numerous breaks for 2012 that had expired at the end of 2011. Check the online supplement in February 2013 at www.jklasser.com or www.barbaraweltman.com to see whether these breaks apply for 2012 returns.

Companies may sell assets other than inventory items. These sales may result in gains or losses that are classified as capital gains or losses. Similarly, companies may exchange assets, also producing capital gains or losses unless tax-free exchange rules apply. Further, owners may sell their interests in the business for gain or loss.

Capital gains generally are treated more favorably than other types of income. However, C corporations do not realize any significant tax benefit from capital gains. What’s more, capital losses may be subject to special limitations.

In this chapter you will learn about:

• What are capital gains and losses
• Tax treatment of capital gains and losses for pass-through entities
• Tax treatment of capital gains and losses for C corporations
• Loss limitations
• Sales of business interests
• Special situations
• Where to report capital gains and losses

The treatment of gains and losses from Section 1231 property and income resulting from depreciation recapture are discussed in Chapter 6.

For further information about capital gains and losses, see IRS Publication 537, Installment Sales; IRS Publication 544, Sales and Other Dispositions of Assets; and IRS ...