Capital gain

Capital gain refers to the increase in value of a capital asset (like an investment or real estate) that gives it a higher worth than the purchase price. The gain is not realized until the asset is sold. A capital gain may be short-term (one year or less) or long-term (more than one year) and must be claimed on income taxes.

Definition

A capital gain is a rise in the value of a capital asset, so it becomes worth more than the purchase price. This gain is not realized until the asset is sold. Capital gains may refer to "investment or real estate", and financial assets sold at a higher price than the purchase price.

Types of Capital Gains

There are two types of capital gains: short-term and long-term. Short-term capital gains are applicable to assets held for one year or less, and are taxed as ordinary income. Long-term capital gains apply to assets held for more than one year, and are taxed at a lower rate.

Taxation

In many countries, including the United States, individuals and corporations pay income tax on the net total of all their capital gains. The tax rate depends on both the investor's tax bracket and the amount of time the investment was held.

Capital Losses

A capital loss occurs when there is a decrease in the capital asset value compared to an asset's purchase price.

See Also

• Capital asset
• Investment
• Real estate
• Income tax
• Capital losses