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Publication 544 2003 Tax Year

Publication 544
Introductory Material

This is archived information that pertains only to the 2003 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.

Table of Contents

Important Changes for 2003

New 50% special depreciation allowance. You can claim a 50% special depreciation allowance for qualified property acquired after May 5, 2003, and placed in service before January 1, 2005. The 30% or the 50% additional first-year depreciation allowance is subject to depreciation recapture. See Depreciation Recapture in chapter 3.

Reduced capital gains tax rates. The maximum tax rate on net capital gain has been reduced for individual taxpayers for sales, exchanges, or conversions of assets after May 5, 2003. The lower rates (from 20% to 15% and from 10% to 5%) apply to assets held more than one year (and installment payments received after that date). See Capital Gains Tax Rates in chapter 4.

Qualified 5-year gain eliminated. The 8% maximum tax rate for qualified 5-year gain has been eliminated for sales and other dispositions after May 5, 2003 (and installment payments received after that date). See Qualified 5-Year Gain in chapter 4.

Important Reminders

Investing in DC Zone assets. Beginning in 2003, investments in District of Columbia Enterprise Zone (DC Zone) assets held more than 5 years will qualify for a special tax benefit. If you sell or exchange a DC Zone asset at a gain, you will not have to include any qualified capital gain in your gross income. This exclusion applies to an interest in, or property of, certain businesses operating in the District of Columbia. For more information, see Publication 954, Tax Incentives for Distressed Communities.

Renewal community capital gain. Beginning in 2007, the sale of an interest in, or property of, certain businesses operating in a renewal community may qualify for a special tax benefit. If you sell qualified community assets held more than 5 years, you will not have to include any qualified capital gain in your gross income. This exclusion applies to any qualified community stock, partnership interest, and business property acquired after 2001. For more information, see Publication 954.

Dispositions of U.S. real property interests by foreign persons. If you are a foreign person or firm and you sell or otherwise dispose of a U.S. real property interest, the buyer (or other transferee) may have to withhold income tax on the amount you receive for the property (including cash, the fair market value of other property, and any assumed liability). Corporations, partnerships, trusts, and estates also may have to withhold on certain U.S. real property interests they distribute to you. You must report these dispositions and distributions and any income tax withheld on your U.S. income tax return. For more information on dispositions of U.S. real property interests, see Publication 519, U.S. Tax Guide for Aliens.

Foreign source income. If you are a U.S. citizen with income from dispositions of property outside the United States (foreign income), you must report all such income on your tax return unless it is exempt from U.S. law. This is true whether you reside inside or outside the United States and whether or not you receive a Form 1099 from the foreign payor.

Photographs of missing children. The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1–800–THE–LOST (1–800–843–5678) if you recognize a child.

Introduction

This publication explains the tax rules that apply when you dispose of property. It discusses the following topics.

  • How to figure a gain or loss.
  • Whether your gain or loss is ordinary or capital.
  • How to treat your gain or loss when you dispose of business property.
  • How to report a gain or loss.

This publication also explains whether your gain is taxable or your loss is deductible.

This publication does not discuss certain transactions covered in other IRS publications. These include the following.

  • Most transactions involving stocks, bonds, options, forward and futures contracts, and similar investments, discussed in chapter 4 of Publication 550, Investment Income and Expenses.
  • Sale of your main home, discussed in Publication 523, Selling Your Home.
  • Installment sales, discussed in Publication 537, Installment Sales.
  • Transfers of property at death, discussed in Publication 559, Survivors, Executors, and Administrators.

Disposing of property.

You dispose of property when any of the following occurs.

  • You sell property.
  • You exchange property for other property.
  • Your property is condemned or disposed of under threat of condemnation.
  • Your property is repossessed.
  • You abandon property.
  • You give property away.

Forms to file.

When you dispose of property, you usually will have to file one or more of the following forms.

  • Schedule D (Form 1040), Capital Gains and Losses.
  • Form 4797, Sales of Business Property.
  • Form 8824, Like-Kind Exchanges.

Chapter 4 illustrates how to fill out Form 4797 and Form 8824.

Comments and suggestions.

We welcome your comments about this publication and your suggestions for future editions.

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Internal Revenue Service
Business Forms and Publications Branch
SE:W:CAR:MP:T:B
1111 Constitution Ave. NW
Washington, DC 20224

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