[D]

Can someone help elaborate on the Q/A below?

******************************************************************************************
Question:
Capital assets include:
A)a corporation’s accounts receivable from the sale of its inventory.
B)7-year MACRS property used in a corporation’s trade or business.
C)a manufacturing company’s investment in U.S. Treasury bonds.
D)a corporate real estate developer’s unimproved land that is to be subdivided to build homes, which will be sold to customers.

Answer C.
Note: IRC Section 1221 explains what a capital asset does not include. For example, it does not include: inventory, any depreciable property,a copyright, a literary, musical, or artistic composition, or accounts or notes receivable acquired in the ordinary course of trade or business for services.
************************************************************************************************

I’m confused because I always thought that capital assets include depreciable property (like PP&E). I’ve spent time working in manufacturing accounting and our capital assets include equipment, buildings, and the like, and we would capitalize & depreciate accordingly. Therefore my first guess would have been B.

What am I missing here??

----------
AUD - 74, 77! (1/2016)
BEC - 80! (5/2016)
REG - tbd (8/2016)
FAR - tbd

Study materials: NINJA MCQ/Audio/Notes

"I can do ALL things through Christ who strengthens me!"
----------

[Spartans92]

Hey TXCPA, one easy way for me to differentiate the two (capital vs non capital) is that capital are any real or personal property NOT used in trade or business. Non capital assets are Machinery and Equip used in trade or business or anything else such as copyright, patents. So based on that all other choices are related to trade or business, hence, non capital. Also, note inventory is specifically excluded from capital asset.

BEC- PASS

[Author]

Replies