Tax Consequences of Sales of Business Assets

When you dispose of a business asset, you have to report your gain or loss on your income tax return. The tax treatment of the transaction is determined by the type of the asset. If the asset is a depreciable asset, the IRS explains that you might have to recognize all or part of the gain as ordinary income.

If you have a gain on the sale of the asset, the gain can be treated as ordinary or capital. You might be entitled to favorable tax rates on the capital gain.

Because the tax treatment of asset sales is complicated, it is recommended that you seek the help of an accountant or a tax professional to assist in calculating the tax on the sale.

Sales of business assets are reported on IRS form 4797, "Sales of Business Property." You can obtain a copy of this form and the instructions that accompany it from the IRS at 1-800-TAX-FORM or from the IRS website at www.irs.gov.