Disposing of Capital Assets
When you sell, scrap, or otherwise remove a capital asset from your business,
you'll have to report the change to the IRS and pay tax on any gain from the
sale.
The good news is that long-term capital gains are taxed at a lower rate than
other income, and if you have a loss on the property, you can deduct it.
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In some cases, if you trade business property for other
business property of the same asset
class, you do not need to recognize a taxable gain or loss.
Instead, you'll be treated as making a nontaxable like-kind
exchange, in which the tax basis of the old property becomes the
tax basis of the new property. The most common situation in
which this rule arises is when you trade
in an old vehicle for a new one.
Consult your tax advisor for more details if you think you
may want to arrange a like-kind exchange, since there are some
very complicated rules to follow.
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When you dispose of a capital asset, your gain (or loss) is computed by
subtracting your adjusted
tax basis for the property from your net proceeds on the sale.
Your proceeds from the sale include the cash you receive in the sale, the
fair market value of any property or services you receive, and the value of any
of your existing mortgage, loans, and other debts that are assumed by the buyer.
From these proceeds you may subtract any costs you had in carrying out the sale
such as brokers' commissions, advertising expenses, appraisal fees, legal fees,
surveys, abstract and recording fees, title insurance, and transfer or stamp
taxes.
Your adjusted tax basis is generally your original cost for the property,
plus the cost of any improvements or additions, and minus any depreciation you
claimed or casualty losses you've deducted.
Here's what you need to know about capital gains: