Definition
IRS determination of asset type (capital vs. ordinary) affecting gain/loss tax treatment.
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Real property held >1 year is capital asset. Capital gains taxed at preferential rates (15-20%). Ordinary gains taxed as ordinary income (up to 37%). Holding period determines classification. Intent matters: dealer vs. investor determination critical. Frequent trading property may be ordinary property. Classification affects tax burden significantly. Professional guidance on classification important. Documentation supports holding period. Taxpayer position risky if IRS disagrees. Strategic decisions affect classification.
Pro Tip
Maintain clear documentation of investment intent for capital asset treatment.
Example
Long-term holding qualified capital asset treatment for preferential tax rates.