George is the owner of numerous classic automobiles. His intention is to hold the automobiles until they increase in value and then sell them. He rents the automobiles for use in various events (e.g., antique automobile shows) while he is holding them.
In 2017, he sold a classic automobile for $1.5 million. He had held the automobile for five years, and it had a tax basis of $750,000.
a. Was the automobile a capital asset?
b. Assuming a rate of return of 7%, how much would he have had to invest five years ago (instead of putting $750,000 into the car) to have had $1.5 million this year? The present value factor for 5 years at 7% is .7130.