Chapter 17, Problem 1DQ

To determine

State whether the equipment is a capital asset.

Explanation of Solution

Capital Assets: Capital assets are held by assesse, whether associated with business or profession or not associated with business or profession. It comprises all kinds of assets like property, tangible, intangible, movable or immovable.

Initially, Person H should ascertain whether these assets are used in a business. As Person H is a farmer, the assumption appears to be reasonable that Person H is in the farming business. As a result, the depreciable farm equipment is not treated as a capital asset as it is depreciable property that is used in a business or trade. Property like this, held more than 12 months, is a Section 1231 asset. Moreover, Section 1231 exactly defines such property as not being a capital asset.