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Sale of a Business


The sale of a business usually is not a sale of one asset, but, all the assets of the business are sold. Each asset is treated as being sold separately for determining the treatment of gain or loss.

A business usually has many assets. When sold, these assets must be classified as:

  • Capital assets

    The sale of capital assets results in capital gain or loss.

  • Depreciable property

    If used in the business, and held for longer than 1 year, it results in gain or loss from a Section 1231 transaction.

  • Real property

    If used in the business, and held for longer than 1 year, it results in gain or loss from a Section 1231 transaction.

  • Inventory or Stock in trade

    The sale of inventory results in ordinary income or loss.


Partnership interests

An interest in a partnership or joint venture is treated as a capital asset when sold. The part of any gain or loss from unrealized receivables or inventory items will be treated as ordinary gain or loss.


Corporation interests

Your interest in a corporation is represented by stock certificates. When you sell these certificates, you usually realize capital gain or loss.


Corporate liquidations

Corporate liquidations of property generally are treated as a sale or exchange. Gain or loss generally is recognized by the corporation on a liquidating sale of its assets. Gain or loss generally is recognized also on a liquidating distribution of assets as if the corporation sold the assets to the distributee at fair market value (FMV).

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