How is the gain or loss on the sale or transfer of a capital asset determined?
A sale or exchange of a capital asset produces a capital gain or loss. Capital asset is not specifically defined by the Internal Revenue Code. Rather, section 1221 sets forth classes of property that do not qualify as capital assets. Under section 1221, capital assets include all property that is held by a taxpayer, whether or not the property is connected with the taxpayer’s trade or business, except for: • Stock in trade, inventory or property held primarily for sale to customers in the ordinary course of business • Depreciable property used in a trade or business or real property used in the taxpayer’s trade or business • A copyright; literary, musical, or artistic composition; letter or memorandum; or similar property (if it meets certain listed requirements) • Business accounts or notes receivable in the ordinary course of business • Certain publications of the US government • Commodities derivative financial instruments held by a commodities derivatives dealer (with certain liste
