Capital Gains
What Is Capital Gains?
Capital gains refer to the profit earned when an investment or asset is sold for more than its original purchase price.
Capital gains commonly occur when selling investments such as stocks, bonds, real estate, or other assets.
Why It Matters
Capital gains are an important component of investment returns. However, these gains may also be subject to taxes.
Understanding capital gains helps investors plan investment strategies and evaluate the tax impact of selling assets.
How Capital Gains Work
Capital gains occur when the selling price of an asset exceeds its original purchase price.
The amount of gain is determined by subtracting the cost basis from the sale price.
Capital gains may be classified as:
- short-term gains
- long-term gains
The tax treatment may vary depending on how long the asset was held.
Example
If an investor buys stock for $2,000 and later sells it for $3,000, the $1,000 profit represents a capital gain.
Capital Gains vs Capital Loss
- A capital gain occurs when an asset sells for more than its purchase price.
- A capital loss occurs when an asset sells for less than its purchase price.
FAQs About Capital Gains
Are capital gains always taxable?
Most capital gains are taxable unless specific exemptions apply.
Do holding periods affect taxes on capital gains?
Yes. Long-term gains may be taxed at lower rates.
Are capital gains considered investment income?
Yes. They are a common form of investment income.
Related Terms
