§1221. Capital asset defined

For purposes of this subtitle, the term "capital asset" means property held by the taxpayer (whether or not connected with his trade or business), but does not include-

(1) stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business;

(2) property, used in his trade or business, of a character which is subject to the allowance for depreciation provided in section 167, or real property used in his trade or business;

(3) a copyright, a literary, musical, or artistic composition, a letter or memorandum, or similar property, held by-

(A) a taxpayer whose personal efforts created such property,

(B) in the case of a letter, memorandum, or similar property, a taxpayer for whom such property was prepared or produced, or

(C) a taxpayer in whose hands the basis of such property is determined, for purposes of determining gain from a sale or exchange, in whole or part by reference to the basis of such property in the hands of a taxpayer described in subparagraph (A) or (B);

(4) accounts or notes receivable acquired in the ordinary course of trade or business for services rendered or from the sale of property described in paragraph (1);

(5) a publication of the United States Government (including the Congressional Record) which is received from the United States Government or any agency thereof, other than by purchase at the price at which it is offered for sale to the public, and which is held by-

(A) a taxpayer who so received such publication, or

(B) a taxpayer in whose hands the basis of such publication is determined, for purposes of determining gain from a sale or exchange, in whole or in part by reference to the basis of such publication in the hands of a taxpayer described in subparagraph (A).

(Aug. 16, 1954, ch. 736, 68A Stat. 321 ; Dec. 30, 1969, Pub. L. 91–172, title V, §514(a), 83 Stat. 643 ; Oct. 4, 1976, Pub. L. 94–455, title XIX, §1901(c)(9), title XXI, §2132(a), 90 Stat. 1803 , 1925; Aug. 13, 1981, Pub. L. 97–34, title V, §505(a), 95 Stat. 331 .)

Amendments

1981-Pars. (5), (6). Pub. L. 97–34 redesignated par. (6) as (5) and struck out former par. (5), which excluded from definition of "capital asset" an obligation of the United States or any of its possessions, or of a State or any political subdivision thereof, or of the District of Columbia, issued on or after March 1, 1941, on a discount basis and payable without interest at a fixed maturity date not exceeding one year from the date of issue, and is covered by section 1232(a)(4)(B) of this title.

1976-Par. (5). Pub. L. 94–455, §1901(c)(9), struck out "or Territory," after "State".

Par. (6). Pub. L. 94–455, §2132(a), added par. (6).

1969-Par. (3). Pub. L. 91–172 inserted reference to a letter or memorandum, added subpar. (B) dealing with a letter or memorandum, and redesignated former subpar. (B) as (C).

Effective Date of 1981 Amendment

Amendment by Pub. L. 97–34 applicable to property acquired and positions established by the taxpayer after June 23, 1981, in taxable years ending after such date, and applicable when so elected with respect to property held on June 23, 1981, see section 508 of Pub. L. 97–34, set out as an Effective Date note under section 1092 of this title.

Effective Date of 1976 Amendment

Section 2132(b) of Pub. L. 94–455 provided that: "The amendment made by subsection (a) [amending this section] shall apply to sales, exchanges, and contributions made after the date of enactment of this Act [Oct. 4, 1976]."

Effective Date of 1969 Amendment

Section 514(c) of Pub. L. 91–172 provided that: "The amendments made by this section [amending this section and sections 341 and 1231 of this title] shall apply to sales and other dispositions occurring after July 25, 1969."

Cross References

Gross income defined, see section 61 of this title.

Inventory items of partnership as including stock in trade of taxpayer, see section 751 of this title.

Sale or exchange of residence as nontaxable, see section 1034 of this title.

Section Referred to in Other Sections

This section is referred to in sections 56, 170, 263A, 267, 341, 367, 543, 595, 707, 751, 818, 856, 857, 864, 865, 954, 995, 1092, 1223, 1231, 1234, 1248, 1362, 1397B, 4662, 7704 of this title.