Capital Assets

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A capital gain or loss comes about from the sale or exchange of a capital asset (or an asset treated as such under IRC section 1231, discussed at 6.3-03). Whether or not an asset is capital depends on its nature and use in the hands of the taxpayer. Exceptions. Capital assets are property, whether or not connected to a trade or business, except:


(1) Stock in trade properly included in inventory;

(2) Property held primarily for sale to customers in the ordinary course of the taxpayer's trade or business;

(3) Notes or accounts receivable acquired in the ordinary course of the taxpayer's trade or business, or from the sale of property described in (1) or (2), above;

(4) Depreciable business property;

(5) Real property used in the taxpayer's trade or business;

(6) Copyrights, literary, musical or artistic compositions, and letters or memoranda, or similar property in the hands of the writer, donees of the writer, and persons to whom they were sent or for whom they were produced;

(7) U.S. government publications, including the Congressional Record, received from the government, other than by purchase at the price at which the publication is offered to the public.

(8) Commodities derivatives held by commodities derivatives dealers;

(9) Hedging transactions; and

(10) Supplies of a type regularly consumed by the taxpayer in the ordinary course of business. (IRC section 1221; Reg. section 1.1221-1) Categories (8), (9), and (10) apply to instruments and supplies held or acquired, and transactions entered into, after December 16, 1999.

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