J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

5.2 How Property Sales Are Classified and Taxed

The tax treatment of gains and losses is not the same for all types of property sales. Tax reporting generally depends on your purpose in holding the property, as shown in Table 5-1.

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Filing Tip

Holding Periods

The time you own a capital asset determines short-term or long-term treatment. The short-term holding period is a year or less, the long-term period more than one year (5.9–5.12).

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When capital gain or loss treatment does not apply.

Certain sales do not qualify for capital gain or loss treatment. Business inventory and property held for sale to customers are not capital assets. Depreciable business and rental property are not capital assets, but you may still realize capital gain after following a netting computation for Section 1231 assets (44.8).

Although assets held for personal use, such as a car or home, are technically capital assets, you may not deduct a capital loss on their sale.

Certain other assets held for investment or personal use are excluded by law from the capital asset category. These include copyrights, literary or musical compositions, letters, memoranda, or similar property that: (1) you created by your personal efforts or (2) you acquired as a gift from the person who created the property or for whom the property was prepared or produced.

Although musical compositions ...