Capital Gain

A capital gain is the profit realized from the sale of a financial asset, such as stocks, bonds, or real estate, when the selling price exceeds the original purchase price. Capital gains are an important component of investment returns and are subject to taxation. There are two types of capital gains: short-term gains, realized from assets held for one year or less, and long-term gains, realized from assets held for more than a year.

Example

If an investor buys a stock for $100 and later sells it for $150, the $50 profit is considered a capital gain and may be subject to capital gains tax.

Key points

• A capital gain is the profit earned from selling an asset at a higher price than the purchase price.

• Short-term gains are taxed at higher rates than long-term gains.

• Capital gains are a key source of income for investors.

Quick Answers to Curious Questions

What is the difference between short-term and long-term capital gains?

Short-term capital gains are from assets held for one year or less and are taxed at higher rates, while long-term capital gains are from assets held for more than a year and taxed at lower rates.

How are capital gains taxed?

Capital gains are subject to taxes, with short-term gains taxed at ordinary income tax rates and long-term gains taxed at a lower rate.

How can investors manage capital gains?

Investors can manage capital gains by timing asset sales to take advantage of lower long-term capital gains tax rates or by using strategies like tax-loss harvesting to offset gains with losses.