Curiously, capital assets are defined by telling what they are not. A capital asset is any property held by a taxpayer except property that is:
(1) stock in trade or inventory,
(2) property used in business which is depreciable,
(3) property held primarily for sale to customers in the ordinary course of taxpayer’s trade or business, and
(4) certain copyrights, compositions, letters and memorabilia.
In short, most assets not used in business are capital assets, and assets used in a business are capital assets unless depreciable or held for sale.
The question of whether an asset is held primarily for sale has resulted in much litigation, and taxpayers should consult their tax advisors with respect to each asset held to determine its status. However, transactions in stocks and bonds by one who is not a dealer or underwriter will always result in capital gain or loss, regardless of the frequency of sales.
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