Archives: Glossary Terms

A requirement for having a valid contract. Parties having less than full capacity include minors, persons adjudged mentally incompetent and those who are intoxicated.

1. A sum of money used to purchase long-term assets.
2. Stocks, bonds, or mortgages that were sold to raise money to purchase assets, as well as retained earnings.
3. Assets, other than land, used to generate income.

The appreciation accruing to the benefit of the capital improvement to real estate.

Any asset of a permanent nature used for the production of income (land, buildings, machinery, equipment, etc.) which under income tax law, is normally distinguishable from “inventory” which are assets held for sale to customers in the ordinary course of the taxpayer’s trade or business.

Example: Oliver paid $25,000 cash as original equity and borrowed $75,000 to purchase a $100,000 vacation home. His laborious efforts to remodel added $20,000 through sweat equity, and inflation raised the value by another $10,000.

The cost of a capital improvement such as investments in land, buildings, machinery, and equipment.

Income of a capital item that results from the sale of an asset and not from the usual course of business, the amount by which, the net sale proceeds exceeds the adjusted cost basis (book value). Gains are used for income tax computations and are taxed at a lower rate than ordinary income and are termed long or short term based upon length of time it was held.

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See Capital loss.

Any structure erected as a permanent improvement to real estate, usually extending the useful life and value of a property such as the replacement of a roof.

A tax-deductible loss on real property that has been held for more than six months. See Capital gain.

The portion of the market funds where equities, mortgages, and bonds are traded. Contrasted with Money market