Page 111 - Virtual Currencies

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Fileid: … tions/p544/2022/a/xml/cycle03/source
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
transcripts, manuscripts, drawings, or pho- sonal efforts created them or if they were pre-
Capital Assets tographs: pared or produced for you. Nor is this property a
a. Created by your personal efforts; capital asset if your basis in it is determined by
reference to the person who created it or the
Almost everything you own and use for per- b. Prepared or produced for you (in the person for whom it was prepared. For this pur-
sonal purposes, pleasure, or investment is a case of a letter, memorandum, or sim- pose, letters and memoranda addressed to you
capital asset. For exceptions, see Noncapital ilar property); or are considered prepared for you. If letters or
Assets, later. memoranda are prepared by persons under
c. Received from a person who created your administrative control, they are considered
The following items are examples of capital the property or for whom the property prepared for you whether or not you review
assets. was prepared under circumstances them.
• Stocks and bonds. (for example, by gift) entitling you to
• A home owned and occupied by you and the basis of the person who created Commodities derivative financial instru-
your family. the property, or for whom it was pre- ment. A commodities derivative financial in-
• Household furnishings. pared or produced. strument is a commodities contract or other fi-
• A car used for pleasure or commuting. But, see the Tip below. nancial instrument for commodities (other than
• Coin or stamp collections. a share of corporate stock, a beneficial interest
• Gems and jewelry. 6. U.S. Government publications you got in a partnership or trust, a note, bond, deben-
• Gold, silver, and other metals. from the government for free or for less ture, or other evidence of indebtedness, or a
• Timber grown on your home property or in- than the normal sales price or that you ac- section 1256 contract) the value or settlement
vestment property, even if you make cas- quired under circumstances entitling you price of which is calculated or determined by
ual sales of the timber. to the basis of someone who got the publi- reference to a specified index (as defined in
cations for free or for less than the normal section 1221(b) of the Internal Revenue Code).
Personal-use property. Generally, property sales price.
held for personal use is a capital asset. Gain 7. Any commodities derivative financial in- Commodities derivative dealer. A com-
from a sale or exchange of that property is a strument (discussed later) held by a com- modities derivative dealer is a person who regu-
capital gain. Loss from the sale or exchange of modities derivatives dealer unless it meets larly offers to enter into, assume, offset, assign,
that property is not deductible. both of the following requirements. or terminate positions in commodities derivative
financial instruments with customers in the ordi-
Investment property. Investment property a. It is established to the satisfaction of nary course of a trade or business.
(such as stocks and bonds) is a capital asset, the IRS that the instrument has no
and a gain or loss from its sale or exchange is a connection to the activities of the Hedging transaction. A hedging transaction
capital gain or loss. This treatment does not ap- dealer as a dealer. is any transaction you enter into in the normal
ply to property used for the production of in- b. The instrument is clearly identified in course of your trade or business primarily to
come. See Business assets, later, under Non- the dealer's records as meeting (a) manage any of the following.
capital Assets. above by the end of the day on which 1. Risk of price changes or currency fluctua-
Release of restriction on land. Amounts you it was acquired, originated, or entered tions involving ordinary property you hold
or will hold.
into.
receive for the release of a restrictive covenant
in a deed to land are treated as proceeds from 8. Any hedging transaction (defined later) 2. Risk of interest rate or price changes or
the sale of a capital asset. that is clearly identified as a hedging trans- currency fluctuations for borrowings you
action by the end of the day on which it make or will make, or ordinary obligations
was acquired, originated, or entered into.
Noncapital Assets 9. Supplies of a type you regularly use or you incur or will incur.
consume in the ordinary course of your Property deducted under the de minimis
A noncapital asset is property that is not a capi- trade or business. safe harbor for tangible property. If you de-
tal asset. The following kinds of property are not ducted the costs of a property under the de
capital assets. 10. Property deducted under the de minimis minimis safe harbor for tangible property, then
upon its sale or disposition, this property is not
safe harbor for tangible property (dis-
1. Stock in trade, inventory, and other prop- cussed later). treated as a capital asset under section 1221.
erty you hold mainly for sale to customers Generally, any gain on the disposition of this
in your trade or business. Inventories are You can elect to treat as capital assets property is treated as ordinary income and is re-
discussed in Pub. 538, Accounting Peri- TIP certain self-created musical composi- ported on Part II of Form 4797.
ods and Methods. But, see the Tip, later. tions or copyrights you sold or ex-
2. Accounts or notes receivable acquired in changed. See chapter 4 of Pub. 550 for details. Sales and Exchanges
the ordinary course of a trade or business
for services rendered or from the sale of Property held mainly for sale to customers. Between Related
any properties described in (1) above. Stock in trade, inventory, and other property Persons
you hold mainly for sale to customers in your
3. Depreciable property used in your trade or trade or business are not capital assets. Inven-
business or as rental property (including tories are discussed in Pub. 538.
section 197 intangibles, defined later), This section discusses the rules that may apply
even if the property is fully depreciated (or Business assets. Real property and deprecia- to the sale or exchange of property between re-
amortized). Sales of this type of property ble property used in your trade or business or lated persons. If these rules apply, gains may
are discussed in chapter 3. for the production of income (including section be treated as ordinary income and losses may
4. Real property used in your trade or busi- 197 intangibles, defined later under Disposi- not be deductible. See Transfers to Spouse in
chapter 1 for rules that apply to spouses.
ness or as rental property, even if the tions of Intangible Property) are not capital as-
property is fully depreciated. sets. The sale or disposition of business prop- Gain Is Ordinary Income
erty is discussed in chapter 3.
5. A patent; invention; model or design
(whether or not patented); a secret for- Letters and memoranda. Letters, memo- If a gain is recognized on the sale or exchange
mula or process; a copyright; a literary, randa, and similar property (such as drafts of of property to a related person, the gain may be
musical, or artistic composition; a letter; a speeches, recordings, transcripts, manuscripts, ordinary income even if the property is a capital
memorandum; or similar property such as drawings, or photographs) are not treated as asset. It is ordinary income if the sale or
drafts of speeches, recordings, capital assets (as discussed earlier) if your per-
Page 20 Chapter 2 Ordinary or Capital Gain or Loss