An asset sale is the sale of just about any item of value. Most of the things you own are considered assets. If you sell them, you might be responsible for reporting the sale and any gain or loss from it to the IRS. Asset sale rules apply not only to items you might personally sell, but also to businesses that perform similar sales.
When real estate such as your personal or vacation home is sold, it is an asset sale. In some cases, you might qualify to have all or a portion of any gain from your sale exempt from tax. You have a gain when the amount you sell the home for is more than the amount you paid for it. Your purchase price also includes the cost of improvements, closing costs and other fees you paid to legally own the home. If you lived in the home for at least two of the last five years, then up to $250,000 in gains -- or $500,000 if you’re married and file a joint return -- is exempt from tax. Losses on personal real estate you live in or use for vacation are not deductible. However, losses are allowed on rental property you sell.
Personal property you own includes just about all your household goods and personal effects. This includes your furniture, appliances, vehicles and clothing. If you sell certain items in this category at a gain, you might have to pay tax on it. This typically applies to the sale of big ticket items such as vehicles, valuable jewelry and collectibles because these are the types of items that either hold or appreciate in value. Most appliances, furniture and similar household goods are sold for less than what they are purchased for and therefore aren't usually sold at a gain. However, the IRS does require you to report any personal property sold at a gain, regardless of the type of item it is. Losses on the sale of personal property are not allowed, so you'll only need to report sales in which you realize a gain.
When you sell investment assets like stocks and bonds, the sale is always reported to the IRS. At the end of the year, you’ll receive a 1099-B form from your broker that lists the amount of money you received from the sale, as well as other information about the type of investment you sold. You’ll need this information to report the sale and any gain or loss from it to the IRS.
Businesses also have asset sales. For example, you may have heard of an “asset liquidation sale”, and may have even bought some items from such a sale. When a business shuts down or closes a location, it must get rid of any remaining inventory to pay creditors or improve cash flow for other locations. In addition to inventory, some businesses sell fixtures, office furniture and machinery to the general public or through an auction. Businesses also report gains or losses from asset sales to the IRS in a manner similar to the way you would report gains or losses from the sale of your personal assets.
With a background in taxation and financial consulting, Alia Nikolakopulos has over a decade of experience resolving tax and finance issues. She is an IRS Enrolled Agent and has been a writer for these topics since 2010. Nikolakopulos is pursuing Bachelor of Science in accounting at the Metropolitan State University of Denver.