What is considered a capital asset?

A capital asset is defined as any property that is owned and used for personal purposes, investment, or to generate income. It typically includes items that can appreciate in value over time. Homes, home furnishings, and stocks fall into this category as they are assets that individuals can hold for personal enjoyment or investment purposes.

A home is clearly a capital asset because it usually appreciates over time, while home furnishings, although personal in nature, can also be considered capital assets if they are of significant value. Stocks are commonly recognized as capital assets since they represent ownership in companies and can lead to capital gains when sold for a profit.

In contrast, personal jewelry is generally not categorized as a capital asset for tax purposes unless it is substantially valuable and used as an investment. Cash and cash equivalents do not qualify as capital assets because they do not typically appreciate in value and are considered liquid assets. Investment accounts may hold capital assets but are not classified as capital assets themselves; they are simply containers for the underlying assets.