Other gains or (losses)
A sale is a transfer of property for money or a mortgage, note, or other promise to pay money. An exchange is a transfer of property for other property or services.
You usually realize gain or loss when property is sold or exchanged. A gain is the amount you realize from a sale or exchange of property that is more than its adjusted basis. A loss occurs when the adjusted basis of the property is more than the amount you realize on the sale or exchange.
The new tax law didn’t make any changes to the types of income reported on IRS Form 1040, Line 14, Other gains or losses.
Note: The new law created new deduction limits and expensing rules under Internal Revenue Code (IRC) § 179.
Line 14 on the IRS Form 1040 tax return is used to report gains or losses from the sale of property used in a trade or business that you didn’t report elsewhere on your return or other schedules.
Examples of other gains or losses include:
- Gain or loss resulting from the sale or exchange of property used in the trade or business;
- Certain involuntary conversions of property used in the trade or business;
- Certain disposition of noncapital assets;
- Disposition of capital assets not reported on IRS Form Schedule D, Capital Gains and Losses;
- Dispositions of certain depreciable business property (IRC § 167 or § 179 property);
- Certain computation of recapture amounts (under IRC §§ 179 and 280F(b)(2)); and
- The gain or loss from deemed sales of securities or commodities with a mark-to-market election.
If you have a net gain or loss from these types of sales, report them on IRS Form 4797, Sales of Business Property, and report the ordinary gain or loss from these types of sales on IRS Form 1040, Line 14.
The new tax law didn’t generally change the types of taxable income reported on Line 14, Other gains or losses, and Form 4797.
Note: The new law created new deduction limits and expensing rules under Internal Revenue Code (IRC) § 179 and expanded the definition of § 179 property.
How will this affect me?
Dean purchased business property, which is section 1245 property, for $50,000. He made no permanent improvements to the property and claimed depreciation totaling $10,000. His adjusted basis in the property is $40,000 ($50,000 – $10,000 depreciation).
He sold the business property on the market for $60,000. Dean reports a gain on the sale of $20,000 ($60,000-$40,000) on IRS Form 4797, Sales of Business Property, as $10,000 ordinary gain and $10,000 long-term capital gain. The ordinary gain of $10,000 is reported on IRS Form 1040, Line 14, and the long-term capital gain of $10,000 is reported on IRS Form 1040, Line 13.