Objective: To investigate financial capacity in patients with Alzheimer disease (AD) using a new theoretical model and prototype psychometric instrument. Design: Cross-sectional comparisons of older control subjects (n = 23) and patients with mild (n = 30) and moderate AD (n = 20). Main Outcome Measures: Financial capacity was measured using the Financial Capacity Instrument, a prototype psychometric instrument that tests financial capacity using 14 tasks of financial ability comprising 6 clinically relevant do mains of financial activity: basic monetary skills, financial conceptual knowledge, cash transactions, checkbook management, bank statement management, and financial judgment. Results: The Financial Capacity Instrument tasks and domains showed adequate to excellent internal, interrater, and test-retest reliabilities. At the task level, patients with mild AD performed equivalently with controls on simple tasks such as counting coins/currency and conducting a 1-item grocery purchase, but significantly below controls on more complex tasks such as using a checkbook/register and understanding and using a bank statement. At the domain level, patients with mild AD performed significantly below controls on all domains except basic monetary skills. Patients with moderate AD performed significantly below controls and patients with mild AD on all tasks and domains. Regarding capacity status outcomes (capable, marginally capable, incapable) on domains, patients with mild AD had high proportions of marginally capable or incapable outcomes (range, 47%- 87%), particularly on difficult domains like bank statement management (domain 5) and financial judgment (domain 6), but variability in individual outcomes. Patients with moderate AD had almost exclusively incapable outcomes across the 6 domains (range, 90%-100%). Conclusions: Financial capacity is already significantly impaired in mild AD. Patients with mild AD demonstrate deficits in more complex financial abilities and impairment in most financial activities. Patients with moderate AD demonstrate severe impairment of all financial abilities and activities. The Financial Capacity Instrument has promise as an instrument for assessing domain-level financial activities and task-specific financial abilities in patients with dementia.