What Can I Claim as Capital Assets?

Many of us are under the impression that we know what capital assets are. Many of us will be in for a surprise when we read the following list of what is not considered a capital asset. Do remember that stocks and bonds, mutual funds, primary residence and vacation homes that you don't rent out, jewelry and coin collections, and cars used for personal or business purposes are considered capital assets. You have the advantage of receiving long-term capital gains tax rate on the gains that you make off them if you held the assets for over one year.

Following are not capital assets:

  • If you are a car dealer and selling cars is your business, you can't claim cars as your capital assets. Any thing that relates to your trade or business cannot be claimed as capital asset if you use the item(s) everyday to make money. If you are a jeweler, you can't claims gems that reside in your store and that you sell everyday as capital assets. These are all considered short-term gain and you pay higher income tax on these.
  • Rental property is considered part of your business, hence is not considered to be a capital asset. The depreciation on the property claimed by you must be subtracted from the long-term gains when you eventually sell the house. The depreciation lowers the amount of money that would be subject to the lower long term gains tax rate. All the depreciation is subject to higher tax rate.
  • Any creative work you churn out, such as a novel or a musical composition is not a capital asset and is not subject to long term capital gains tax rate, even if you sold it a year after you created the novel.
  • Any publication purchased from the U.S. government and then sold at a profit is not a capital asset.