An ordinary loss refers to a financial loss that arises from the sale or exchange of property that is not classified as a capital asset. This means that if you sell or exchange property that is considered ordinary, the resulting loss can be deducted from your taxable income. Ordinary losses are important for tax purposes as they can help reduce your overall tax liability.
Ordinary losses are primarily relevant in the context of tax law. They are used to determine taxable income and can affect various areas, including personal finance and business operations. Individuals and businesses may encounter ordinary losses when selling inventory, equipment, or other non-capital assets. Users can manage the documentation related to these losses through forms available on platforms like US Legal Forms, which offer templates drafted by legal professionals.
Here are a couple of examples of abatement:
Example 1: A small business sells its used delivery truck for less than its book value. The loss incurred from this sale can be considered an ordinary loss and may be deducted from the business's taxable income.
Example 2: An individual sells a piece of equipment that was used in their business at a loss. This loss can be classified as an ordinary loss, allowing for potential tax benefits. (hypothetical example)
Ordinary losses are defined under the Internal Revenue Code, specifically in 26 USCS § 65. This statute outlines the criteria for what constitutes an ordinary loss and how it is treated for tax purposes.
| Term | Definition | Key Difference |
|---|---|---|
| Capital Loss | A loss from the sale of a capital asset. | Capital losses arise from capital assets, while ordinary losses do not. |
| Business Loss | A loss incurred in the course of business operations. | Business losses can include both ordinary and capital losses. |
If you believe you have incurred an ordinary loss, it's important to document the transaction accurately. Keep records of the sale or exchange and consult tax guidelines to determine how to report the loss. You can find ready-to-use legal forms on US Legal Forms that can assist you in managing this process. If your situation is complex, consider seeking advice from a tax professional.
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Any loss from the sale or exchange of property that is not a capital asset qualifies as an ordinary loss.