Capital Gain

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Definition

A capital gain is the profit resulting from a sale or exchange of a capital asset, wherein the capital asset could be real estate, stock or bond. Most commonly, capital gains are realized from the sale of stocks, bonds, precious metals, and property.

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.

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LAYMEN TERMS

Capital gain is achieved when the sale price go above or beat the purchased price of the capital asset. Hence, the gain is not recognized until the asset is sold.

Suppose you purchase 100 shares of ABC Company for $1 per share. After four months, the share price increases to $5. This means the value of the investment has increased from $100 to $500, for a capital gain of $400.

HOW DOES THIS TERM APPLY TO YOU

A property is bought for $500,000 and sold for $600,000. Wondering what your capital gain would be? If your guess is $100,000, you’re close. But it’s not all money in your pocket. The capital gain is the amount of money you earn when your property value goes up between the dates you bought it and the time it sold, and needs to be reported on your tax return.

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