Sale or Exchange Requirement:
i. Code: 1001(a), (b), (c), 1222, 1234(a)
ii. Reg: 1.1001-2(a), (b); 1.1002-1
iii. the “sale or exchange” requirement for capital gain or loss characterization is statutorily embodied in 1222; 1001(a) contains similar language, requiring a “sale or other disposition” b/f or gain or loss may be realized. But 1222 is a higher standard.
iv. Point of all this: not all sales or other dispositions that realize gain or loss will qualify as capital gain or loss. Even if you’re dealing with admittedly capital assets, their dispositions won’ t necessarily qualify you for capital treatment.
1. Helvering v. William Flaccus Oak Leather Co. If an insurance co. pays you b/c you lost a building in a fire, you didn’t sell or exchange the building. So if the proceeds from the payoff exceed your basis, you’ve got ordinary income, not K income.
2. Other exs. of dispositions that don’t qualify for K treatment:
We have located some similar legal questions and legal question categories. Check out these challenging questions that askquestions about Tax Law and are similar to What is the Sale or Exchange Requirement?. Also, we have included a list of some of our more popular legal question categories. These categories are based on what everyone is asking and answering.