Capital gains or losses result from selling capital assets which generally, but not always, includes the sale of real estate.  Some things that are not capital assets are: business inventory, business receivables, real or other depreciable business property and certain copyrights, musical and literary compositions.  In a recent Tax Court decision, the Court decided that real property held by a company for sale to customers is not a capital asset, so the profit from the sale has to be treated as ordinary income.  The reaason the differeentiation is important is that capital gains are taxed at a lower rate that ordinary gains.  Also, deductions for net capital losses are treated differently (stricter) than those for ordinary losses.  There are many fine points in this area of the tax code which space does not allow me to explore here.