Legal Definitions - capital assets

Capital assets refer to significant, long-term possessions owned by an individual or a business that are not intended for immediate sale in the ordinary course of business. Instead, these assets are typically held for their value appreciation over time or for use in producing income or services over an extended period.

Here are some examples to illustrate the concept of capital assets:

• Example 1: A Manufacturing Company

  Imagine a company that manufactures custom furniture. The large industrial building where the furniture is made, along with the specialized woodworking machinery and delivery trucks used to transport finished products, are all considered capital assets. These items are not sold to customers; instead, they are long-term investments that the company uses repeatedly over many years to produce its furniture and generate revenue.

• Example 2: A Software Development Firm

  Consider a software development firm that creates mobile applications. The office building where its programmers and designers work, the servers that host its development environment, and the intellectual property rights (like patents for unique algorithms) it owns are all capital assets. These are crucial, long-lasting resources that enable the company to operate and develop its products, rather than items it sells directly to clients.

• Example 3: An Independent Graphic Designer

  An independent graphic designer might own a high-performance computer workstation, specialized design software licenses, and a professional-grade printer. These are capital assets because they are significant investments that the designer uses consistently over several years to create designs for clients and earn income, rather than being items purchased for resale.