Assets are things of value. You can buy, sell, trade and inherit assets, receive them as gifts and even destroy them. Businesses buy assets to help them make money, but individuals often purchase assets, such as homes and cars, for personal use. Selling an asset usually provides you with some cash or another asset. It also can create a tax liability if you earn a profit on the sale.
Making a Profit
Some types of assets, such as homes, jewelry or collectibles, may appreciate in value over time. For the owner, this can mean he'll enjoy a return on his purchase if the asset is worth more than the total amount of his investment at the time of the sale. Investors who sell an asset such as a stock portfolio can use the profits to finance other investment ventures. Successful entrepreneurs can also sell their business and use the profits to fund their retirement.
Another advantage of selling assets is that the proceeds can be used to reduce or eliminate debt. People who have an unused vehicle can sell it to reduce their credit card debt or apply it to their home mortgage. Business owners can sell outdated equipment or an unused building to reduce the amount they owe to creditors. In extreme cases, selling assets can help ward off potentially devastating events such as bankruptcy.
A disadvantage of selling an asset is that there could be tax consequences. In general, when you purchase an asset and later sell it at a profit, it is subject to capital gains taxation. As of 2014, the capital gains tax rate ranges from 0 to 20 percent, depending on your income. .Homeowners who have lived in the home for at least two of the previous fives years before selling may also be exempt from capital gains taxation on the first $250,000 of profit, or $500.000 for joint filers.
In some cases, selling an asset can result in not receiving the full market value for the item. A homeowner who needs to sell a property quickly, perhaps due to financial problems or the need to relocate, may not have time to wait for and weigh a variety of offers. A failing retailer may be forced to close her doors and sell her merchandise and other business assets at a liquidation sale, which typically means dramatically slashing her prices.