Whether a gain or loss is subject to special treatment, as "capital" as opposed to "ordinary," usually is dependent upon (1) whether it arises in a transaction involving a "capital asset," (2) whether the capital asset has been the subject of a "sale or exchange," and (3) how long the taxpayer has "held" the asset. Failure of a transaction to involve a capital asset or a sale or exchange results in ordinary income or an ordinary deduction. However, one should be aler for statutory provisions that may artificially accord capital gain or loss treatment to some transactions which do not actually involve the sale or exchange of a capital asset.1.
1. Fundamentals of Federal Income Taxation, Chapter 21A. Capital Gains and Losses. Freeland, Lathrope, Lind, and Stephens. Page 676