Most of the property you own and use for personal purposes, or investment is considered a capital asset. Capital assets would include your house, furniture, car, boat, stocks, bonds, and other investments, for example. When you sell any of these assets, any gain you have is a capital gain and should be included on Schedule D.
Selling Your Home
Gain on the sale of your home may qualify for an exclusion. This is explained in Internal Revenue Service (IRS) Publication 523, Selling Your Home. If you do not qualify for the exclusion, or if your gain is more than the amount you can exclude, you would report the taxable gain on Schedule D.
Property Converted from Business Use to Personal Use
If you have a gain on the sale of an asset that you converted from business use to personal use, part of the gain may correspond to deprecation you had taken previously. This part of the gain may have to be “recaptured” and taxed as ordinary income. In this case, you would have to use Part III of Form 4797, Sales of Business Property, to determine the amount that has to be recaptured.
Property Used for Both Personal and Business or Rental Purposes
If you have a gain or loss on the sale or exchange of property you use partly for business or rental purposes and partly for personal purposes, you must figure the gain or loss on the sale or exchange as if you sold two separate pieces of property. You will need to allocate the selling price, selling expenses, and basis between the personal and business portions of the property and calculate the gain or loss on the personal and business or rental portions separately. The basis of the business or rental portion must be reduced by any depreciation you have taken on the property.
Gain or loss on the business or rental portion is either capital gain or loss, or ordinary gain or loss. Any gain on the personal portion is a capital gain, and a loss on the personal portion is not deductible.