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Dealings in Properties
Dealings in Properties
Dealings in Properties
Dealings in properties involve the sale, exchanges, and other disposition of properties such as ordinary assets or capital
assets. Dealings in ordinary assets are subject to regular income tax.
Dealings in capital assets, other than domestic stocks and real properties, are also subject to regular income tax. Dealings in
ordinary assets may result in an ordinary gain or an ordinary loss. Dealings in capital assets may likewise result in a capital gain or a
capital loss.
Tax Treatment
Ordinary Gains or Losses
Ordinary gains are separated items of gross income subject to regular income tax. Ordinary losses are items of
deductions from gross income in the determination of net income from business or profession.
Ordinary gain is taxable in full. Ordinary loss is deductible in full.
The gain or loss on sale by dealers of properties is an ordinary gain or loss. Exceptionally, bonds, debentures, notes, or
other certificates of indebtedness issued by any corporation or by the government are considered ordinary assets by the
NIRC if owned by banks or trust companies. The gain or loss on these debt instruments by banks or trust companies are
deemed ordinary gains or loss.
Also under the regulations, the real and other properties acquired (ROPA) by banks, although they are not involved in the
realty business, are considered ordinary assets. Hence, gain or loss on sale of banks of their ROPA is an ordinary gain or
ordinary loss.
Capital Gains and Losses
Under the NIRC, capital losses are deductible only up to the extent of capital gains from dealings in capital assets other
than domestic stocks and real properties. Hence, capital gains and capital losses are offset. A net capital gain is an item of
gross income subject to regular income tax. A net capital loss is not an item of deduction against gross income. The law
views net capital losses as unnecessary expenses since capital assets are not used in the business or trade of the taxpayer.