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Noncapital Assets: Business Property Sales (2025 IRS Guide)

This guide covers “Noncapital Assets” within business property sales. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 544 (2025), Sales and Other Dispositions of Assets, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

Noncapital Assets

A noncapital asset is property that is not a capital asset. The following kinds of property are not capital assets.

  1. Stock in trade, inventory, and other property you hold mainly for sale to customers in your trade or business. Inventories are discussed in Pub. 538, Accounting Periods and Methods. But, see the Tip, later.

  2. Accounts or notes receivable acquired in the ordinary course of a trade or business for services rendered or from the sale of any properties described in (1) above.

  3. Depreciable property used in your trade or business or as rental property (including section 197 intangibles, defined later), even if the property is fully depreciated (or amortized). Sales of this type of property are discussed in chapter 3.

  4. Real property used in your trade or business or as rental property, even if the property is fully depreciated.

  5. A patent; invention; model or design (whether or not patented); a secret formula or process; a copyright; a literary, musical, or artistic composition; a letter; a memorandum; or similar property such as drafts of speeches, recordings, transcripts, manuscripts, drawings, or photographs:

    1. Created by your personal efforts;

    2. Prepared or produced for you (in the case of a letter, a memorandum, or similar property); or

    3. Received from a person who created the property or for whom the property was prepared under circumstances (for example, by gift) entitling you to the basis of the person who created the property or for whom it was prepared or produced.

    But, see the Tip, later.

  6. U.S. Government publications you got from the government for free or for less than the normal sales price or that you acquired under circumstances entitling you to the basis of someone who got the publications for free or for less than the normal sales price.

  7. Any commodities derivative financial instrument (discussed later) held by a commodities derivatives dealer unless it meets both of the following requirements.

    1. It is established to the satisfaction of the IRS that the instrument has no connection to the activities of the dealer as a dealer.

    2. The instrument is clearly identified in the dealer’s records as meeting (a) above by the end of the day on which it was acquired, originated, or entered into.

  8. Any hedging transaction (defined later) that is clearly identified as a hedging transaction by the end of the day on which it was acquired, originated, or entered into.

  9. Supplies of a type you regularly use or consume in the ordinary course of your trade or business.

  10. Property deducted under the de minimis safe harbor for tangible property (discussed later).

Tip:

You can elect to treat as capital assets certain self-created musical compositions or copyrights you sold or exchanged. See chapter 4 of Pub. 550 for details.

Property held mainly for sale to customers.

Stock in trade, inventory, and other properties you hold mainly for sale to customers in your trade or business are not capital assets. Inventories are discussed in Pub. 538.

Business assets.

Real property and depreciable property used in your trade or business or for the production of income (including section 197 intangibles, defined later under Dispositions of Intangible Property) are not capital assets. The sale or disposition of business property is discussed in chapter 3.

Letters and memoranda.

Letters, memoranda, and similar property (such as drafts of speeches, recordings, transcripts, manuscripts, drawings, or photographs) are not treated as capital assets (as discussed earlier) if your personal efforts created them or if they were prepared or produced for you. Nor is this property a capital asset if your basis in it is determined by reference to the person who created it or the person for whom it was prepared. For this purpose, letters and memoranda addressed to you are considered prepared for you. If letters or memoranda are prepared by persons under your administrative control, they are considered prepared for you whether or not you review them.

Commodities derivative financial instrument.

A commodities derivative financial instrument is a commodities contract or other financial instrument for commodities (other than a share of corporate stock; a beneficial interest in a partnership or trust; a note, bond, debenture, or other evidence of indebtedness; or a section 1256 contract) the value or settlement price of which is calculated or determined by reference to a specified index (as defined in section 1221(b) of the Internal Revenue Code).

Commodities derivatives dealer.

A commodities derivatives dealer is a person who regularly offers to enter into, assume, offset, assign, or terminate positions in commodities derivative financial instruments with customers in the ordinary course of a trade or business.

Hedging transaction.

A hedging transaction is any transaction you enter into in the normal course of your trade or business primarily to manage any of the following.

  1. Risk of price changes or currency fluctuations involving ordinary property you hold or will hold.

  2. Risk of interest rate or price changes or currency fluctuations for borrowings you make or will make or ordinary obligations you incur or will incur.

Property deducted under the de minimis safe harbor for tangible property.

If you deducted the costs of a property under the de minimis safe harbor for tangible property, then upon its sale or disposition, this property is not treated as a capital asset under section 1221. Generally, any gain on the disposition of this property is treated as ordinary income and is reported in Part II of Form 4797.

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.

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