Capital Assets | Practical Law

Capital Assets | Practical Law

Capital Assets

Capital Assets

Practical Law Glossary Item 1-382-3301 (Approx. 3 pages)

Glossary

Capital Assets

All property held by a taxpayer unless specifically excluded under the Internal Revenue Code (IRC) (IRC § 1221(a)). The following types of property are generally excluded from the definition of capital asset:
  • Stock in trade or other inventory property.
  • Property held primarily for sale to customers in the ordinary course of business.
  • Depreciable property used in a trade or business.
  • Real property used in a trade or business.
  • Patents, inventions, models or designs, secret formulas or processes held either by:
    • the taxpayer who created the property; or
    • a taxpayer with a carryover basis from the taxpayer who created the property.
  • Certain copyrights, literary, musical or artistic compositions or other similar properties.
  • Accounts or notes receivable acquired in the ordinary course of a trade or business for services rendered, or from the sale of property described above in the first two bullets.
  • Certain US government publications.
  • Commodities derivative financial instruments held by commodities derivatives dealers.
  • Any hedging transaction.
  • Supplies of a type that are regularly used or consumed in the ordinary course of a trade or business.
The sale or exchange of a capital asset generates capital gains or capital losses.
For special rules that apply to gains from certain trade or business property, see Practice Note, Taxation of Section 1231 Property. For information on the treatment of capital gains in private equity transactions, see Practice Note, Preferred Stock in Private Equity Transactions: Significant Tax Issues: Capital Gains and Losses.