When a person buys or sells assets, this may have a number of important tax implications. If the person purchased the asset as a business expense, he may claim it as a deduction, as long as it meets IRS criteria for business expenses. However, the person can't deduct the purchase of the asset twice --- as a business expense and as another kind of deduction.
Assets
An asset is any object of value, particularly one that retains its value over a period of time. A person can't claim the purchase of an asset as a deduction, as it's a financial investment, and financial investments are tax deductible. However, in certain cases, the purchase of an asset may qualify as a legitimate business expense.
Business Expenses
A business expense, according to the IRS, is an expense that's "common and accepted" in the business in which you're involved, as well as necessary to making your business successful. This doesn't mean that the purchase has to be critical to your business. However, although business expenses may be deducted, they must be separated from capital expenses and personal expenses.
Capital Expenses
A capital expense is an expense that involves the purchase of capital. The exact distinction between a business expense and a capital expense is discussed in the IRS publication "Deducting Business Expenses," but, in short, a capital expense involves the purchase of capital equipment that's used beyond the tax year in which it's purchased. A capital purchase isn't tax deductible, as it's considered an investment in your business.
Personal Expenses
If the asset was a personal expense, meaning that you bought it for yourself rather than in the service of your business, you can't deduct its purchase. Even if you're an investor, you can't deduct certain kinds of capital expenses, such as securities. However, you may be able to make a deduction if you lose money on the sale of the security.
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