capital assets are significant pieces of property such as homes cars investment properties stocks bonds and even collectibles or art for businesses a capital asset is an asset with a useful life longer than a year that is not intended for sale in the regular course of the business s operation this also makes it a type of production cost for example if one company buys a computer to use in its office the computer is a capital asset if another company buys the same computer to sell it is considered inventory 
investopedia michela buttignoltypes of capital assets in businessa capital asset is generally owned for its role in contributing to the business s ability to generate profit furthermore it is expected that the benefits gained from the asset will extend beyond a time span of one year on a business s balance sheet capital assets are represented by the property plant and equipment pp e figure examples of pp e include land buildings and machinery these assets may be liquidated in worst case scenarios such as if a company is restructuring or declares bankruptcy in other cases a business disposes of capital assets if the business is growing and needs something better for example a business may sell one property and buy a larger one in a better location in many cases companies may develop their own capital assets for example a company may buy land a capital asset then deploy money and labor to build a building warehouse or manufacturing plant each of these structures is a capital asset that would likely provide long term benefit to the company though many capital assets are usually physical assets you can touch capital assets can technically be intangible goods stocks bonds trademarks patents or other non physical goods can be capital assets depending on their use capital assets may also represent a claim on indebtedness mutual funds or tenancy rights it is important to note that intangible assets may have different limitations when expensing or depreciating the value of the assets another distinction between tangible assets and intangible assets is it may be easier to value a tangible asset due to more liquid and robust markets intangible assets that act as capital assets must be periodically evaluated to ensure they still retain their value the phrase capital assets isn t used on financial statements instead the balance sheet will be broken into current assets and long term assets selling or maintaining capital assetsbusinesses may dispose of capital assets by selling them trading them abandoning them or losing them in foreclosures in some cases condemnation also counts as a disposition in most cases if the business owned the asset for longer than a year it incurs a capital gain or loss on the sale however in some instances the irs treats the gain like regular income 1 capital assets can also be damaged or become obsolete when an asset is impaired its fair value decreases which will lead to an adjustment of book value on the balance sheet a loss will also be recognized on the income statement if the carrying amount exceeds the recoverable amount an impairment expense amounting to the difference is recognized in the period if the carrying amount is less than the recoverable amount no impairment is recognized individuals and capital assetsany significant asset owned by an individual is a capital asset if an individual sells a stock a piece of art an investment property or another capital asset and earns money on the sale they realize a capital gain the irs requires individuals to report capital gains on which a capital gains tax is levied even an individual s primary home is considered a capital asset however the irs gives couples filing jointly a 500 000 tax exclusion and individuals filing as single a 250 000 exclusion on capital gains earned through the sale of their primary residences 2 however an individual cannot claim a loss from the sale of their primary residence 3 if an individual sells a capital asset and loses money they can claim the loss against their gains but their losses cannot exceed their gains 1for example if an individual buys a 100 000 stock and sells it for 200 000 they report a 100 000 capital gain but if they buy a 100 000 home and sell it years later for 200 000 they do not have to report the gain due to the 250 000 exemption although both the home and the stock are capital assets the irs treats them differently capital assets are not to be confused with the term capital capital is another word for money or financing whereas capital assets represent a collection of certain types of assets money not being one of them capital assets recording and taxationthe cost for capital assets may include transportation costs installation costs and insurance costs related to the purchased asset if a firm purchased machinery for 500 000 and incurred transportation expenses of 10 000 and installation costs of 7 500 the cost of the machinery will be recognized at 517 500 