Ordinary income stands in contrast to capital gains, which is defined as gain from the sale or exchange of a capital asset. The definition of capital asset under the tax law can be explained by noting that your house is a capital asset to you the homeowner but if you bought it from a land developer who had many houses on many lots, each of those houses was inventory when he sold them and hence was not a capital asset to him, just as clothing would be inventory and not a capital asset to Saks Fifth Avenue.
Another case where income is not taxed as ordinary income is with qualified dividends. The general rule taxes dividends as ordinary income. A change allowing use of the same tax rates as for long term capital gains rates for qualified dividends was made with the Jobs and Growth Tax Relief Reconciliation Act of 2003. Qualified dividends are dividends paid by domestic corporations or qualified foreign ones which the corporation has included in its own taxable income. Thus passthrough corporations like REITs and REMICs would not distribute qualified dividends and would be taxed at the ordinary income rates.
When to report ordinary income if a partnership with hot assets redeems a partnership interest and the liquidating distributions are made over several tax years.
Oct 01, 2009; When a partner in a business partnership retires with a buyout agreement in place, the buyout agreement typically requires either...