Income - Small Business Investor Deduction FAQs

If a sale of business property is treated as ordinary income on Form 4797 of the federal 1040, does this income qualify for the SBD? Would a capital gain arising from the sale of a business asset also qualify?

To qualify for the SBD, income must be considered to be “business income” under OH law.  See 5747.01(B) and (C) and Kemppel v. Zaino, 91 Ohio St.3d 420 (2001).  If a business’ property was an integral part taxpayer’s business operation, that taxpayer likely has a good argument that the gain on the sale of that property was business income.  Such gain should be reported on line 5 of the IT SBD as “capital gain” or “other gain”.