[Code of Federal Regulations]
[Title 26, Volume 12]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.1402(a)-6]

[Page 17]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.1402(a)-6  Gain or loss from disposition of property.

    (a) There is excluded any gain or loss: (1) Which is considered as 
gain or loss from the sale or exchange of a capital asset; (2) from the 
cutting of timber or the disposal of timber, coal, or iron ore, even 
though held primarily for sale to customers, if section 631 is 
applicable to such gain or loss; and (3) from the sale, exchange, 
involuntary conversion, or other disposition of property if such 
property is neither (i) stock in trade or other property of a kind which 
would properly be includible in inventory if on hand at the close of the 
taxable year, nor (ii) property held primarily for sale to customers in 
the ordinary course of a trade or business. For the purpose of the 
special rule in subparagraph (3) of this paragraph, it is immaterial 
whether a gain or loss is treated as a capital gain or loss or as an 
ordinary gain or loss for purposes other than determining net earnings 
from self-employment. For instance, where the character of a loss is 
governed by the provisions of section 1231, such loss is excluded in 
determining net earnings from self-employment even though such loss is 
treated under section 1231 as an ordinary loss. For the purposes of this 
special rule, the term ``involuntary conversion'' means a compulsory or 
involuntary conversion of property into other property or money as a 
result of its destruction in whole or in part, theft or seizure, or an 
exercise of the power of requisition or condemnation or the threat or 
imminence thereof; and the term ``other dispostion'' includes the 
destruction or loss, in whole or in part, of property by fire, storm, 
shipwreck, or other casualty, or by theft, even though there is no 
conversion of such property into other property or money.
    (b) The application of this section may be illustrated by the 
following example:

    Example. During the taxable year 1954, A, who owns a grocery store, 
realized a net profit of $1,500 from the sale of groceries and a gain of 
$350 from the sale of a refrigerator case. During the same year, he 
sustained a loss of $2,000 as a result of damage by fire to the store 
building. In computing taxable income, all of these items are taken into 
account. In determining net earnings from self-employment, however, only 
the $1,500 of profit derived from the sale of groceries is included. The 
$350 gain and the $2,000 loss are excluded.

[T.D. 6691, 28 FR 12796, Dec. 3, 1963, as amended by T.D. 6841, 30 FR 
9309, July 27, 1965]

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