Legal Definitions - capital transaction

A capital transaction refers to the buying, selling, or exchanging of a significant asset that is typically held for investment or personal use, rather than being part of a business's regular inventory or daily operations. These assets, known as "capital assets," are generally expected to provide long-term value or appreciation.

Here are some examples to illustrate this concept:

• Example 1: Selling a Personal Residence

  Imagine a couple decides to sell their primary home, which they have owned and lived in for fifteen years. The house is considered a capital asset because it is a significant personal possession held for long-term use, not for resale as part of a business. The act of selling this home constitutes a capital transaction.

• Example 2: Investing in Stocks

  An individual uses their savings to purchase shares of a publicly traded company through a brokerage account. These shares are held with the expectation of long-term growth or dividend income, making them a capital asset. The purchase of these shares is therefore a capital transaction.

• Example 3: A Business Selling Old Equipment

  A small construction company decides to upgrade its fleet and sells an older bulldozer that it has used for many years on various projects. This bulldozer is a capital asset for the business because it is a piece of equipment used for operations over a long period, not an item the company regularly buys and sells as inventory. The sale of this bulldozer is considered a capital transaction.