Intro to Fed Tax Supplement Chp. 8 1) What are Capital Assets (Sec. 1221)? a) assets can be classified differently depending on their use by the taxpayer; e.g., land i. held by RE developer inventory ii. used in business Sec. 1231 asset iii. held by investor capital asset b) assume you buy a car for 100% personal use i. Is it a capital asset to you? YES ii. Can you depreciate it & get a deduction? NO; deduction only if used for business iii. When you sell it, do you recognize gains & losses? Gains- YES; Losses-NO c) what if car is 100% business use i. you can depreciate & get a deduction; it is a Sec. 1231 asset