Duhaime's Law Dictionary Capital Asset Definition: A designation of an asset so that profit or loss can be tracked for tax purposes; generally, all and any asset belonging to a tax-payer except those specifically excluded. In the United States, the Internal Revenue Service, as of 2010, wrote: "Almost everything owned and used for personal or investment purposes is a capital asset. Examples are a home, household furnishings, and stocks or bonds held in a personal account. When a capital asset is sold, the difference between the basis in the asset and the amount it is sold for is a capital gain or a capital loss. You have a capital gain if you sell the asset for more than your basis. You have a capital loss if you sell the asset for less than your basis. Losses from the sale of personal-use property, such as your home or car, are not deductible. "Capital gains and losses are classified as long-term or short-term. If you hold the asset for more than one year before you dispose of it, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term. "Capital gains and deductible capital losses are reported..." In Canada, Justice Jackett of the Exchequer Court of Canada wrote, in Canada Steamship Lines: "Things used in a business to earn the income — land, buildings, plant, machinery, motor vehicles, ships — are capital assets. "Money laid out to acquire such assets constitutes an outlay of capital. By the same token, money laid out to upgrade such an asset — to make it something different in kind from what it was — is an outlay of capital. "On the other hand, an expenditure for the purpose of repairing the physical effects of use of such an asset in the business — whether resulting from wear and tear or accident — is not an outlay of capital. It is a current expense." REFERENCES: Canada Steamship Lines v MNR, [1966] C.T.C. 255 and at 66 D.T.C. 5205 Duhaime, Lloyd, Legal Definition of Capital Expenditure Duhaime, Lloyd, Legal Definition of Capital Gain Duhaime, Lloyd, Legal Definition of Capital Loss I.R.S., Topic 409 - Capital Gains and Losses (2010) Categories & Topics: Duhaime's Tax Law Dictionary Always looking up definitions? Save time with our search provider (modern browsers only) If you find an error or omission in Duhaime's Law Dictionary, or if you have suggestion for a legal term, we'd love to hear from you!