Capital Asset Definition – Paul Gaulkin CPA

Keyboard with keys saying stocks and bondsThe IRS does not actual define for taxpayer what it considers to be a capital asset. Instead, the IRS specifies what it considers not to be a capital asset. The IRS defines a capital asset as any property held by the taxpayer except:

1. Stock in trade or other inventory property or property held by the taxpayer primarily for sale to customers in the ordinary course of a trade or business.

2. Depreciable property used in a trade or business.

3. Real property used in a trade or business.

4. Copyright, literary, musical, or artistic composition, letter or memorandum, or similar property held by a taxpayer whose personal efforts created the property, a taxpayer for whom the property was prepared or produced, or a taxpayer in whose hands the basis of the property is determined by reference to the basis of the property held by a taxpayer described in the previous two examples.

5. Accounts or notes receivable acquired in the ordinary course of a trade or business for services rendered or from the sale of property.

6. U.S. government publications received by a taxpayer from the government other than by purchase at the price at which they are offered for sale to the public, or held by a taxpayer whose basis in such publications is determined by reference to a taxpayer described previously.

The majority of the items that are excluded from capital assets are inventory and business fixed assets such as land, buildings, machinery, and equipment.

Examples of Capital Assets

The primary capital assets are investment property such as stocks, bonds, and personal use assets such as a residence or personal automobile. Gains and losses from the sale of investment property are recognized as capital gains and losses. Gains from the sale or exchange of personal use assets are capital gains, but losses from transactions in personal use assets are never deductible, unless a casualty or theft is involved.

About Paul Gaulkin CPA

Paul Gaulkin is a Certified Public Accountant and enrolled with the U.S. Treasury to practice before the IRS. Mr. Gaulkin possesses unique technical knowledge in the process of securing relief for taxpayers nationwide with IRS and State tax problems. With an accounting degree from Florida International University, he is able to transform complex tax and accounting problems into easy to understand solutions.


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