Which of the following is considered a capital asset?

The classification of a capital asset is important in determining how gains or losses from sales of such assets are taxed. A capital asset typically refers to property owned by an individual or a business that can appreciate in value over time and is not primarily used for business operations.

In this case, the car that is used for personal errands falls into the definition of a capital asset. It is owned for personal use, rather than for business purposes. When the car is sold, any gain from the sale would be treated as a capital gain if it was sold for more than its adjusted basis. Conversely, if the car is sold for less than its basis, the loss may be considered a capital loss, which can potentially offset other capital gains.

On the other hand, business supplies do not qualify as capital assets because they are typically consumed in the course of business operations. Similarly, real property used in a trade or business does not qualify as a capital asset for personal tax implications, as it is considered depreciable property. Lastly, inventory is intended for sale in the ordinary course of business and is not classified as a capital asset since it doesn’t retain long-term appreciation but is instead expected to be sold.

The distinction between capital assets and other types of assets is crucial