Tax Rate on Capital Gains

Business property that is held for one year or less is considered to be held on a short-term basis. If you sell, scrap, retire, or otherwise dispose of a short-term capital asset, any related gains will be taxed at your ordinary income tax rate.

However, if the property was held for more than one year, gains on it will generally be treated as long-term capital gains. While property used in a trade or business is technically not a "capital asset," in the IRS's view, the tax laws do apply the more favorable capital gains tax rates to this property.

Exceptions to capital gains treatment. An important exception to the special rate for capital gains is any gain that represents recaptured depreciation. Also, in some cases sales to close family members or controlled business entities might not be eligible for capital gains treatment, or for deduction of a capital loss.