Capital gain refers to the profit that an individual or entity realizes when they sell an asset for a price that is higher than the price they initially paid for it.
In other words, it is the difference between the purchase price of the asset and the price at which it is sold.
Assets that are typically subject to capital gains tax include stocks, bonds, real estate, and precious metals. The tax on capital gains is usually calculated as a percentage of the profit, with the rate varying based on the holding period of the asset and the taxpayer’s income level.
Capital gains can arise from a variety of sources, including the sale of investments, such as stocks, mutual funds, or real estate, as well as the sale of personal property, such as artwork, jewelry, or a second home.
Capital gains can be either short-term or long-term, depending on how long the asset was held before it was sold.
Short-term capital gains are typically taxed at a higher rate than long-term capital gains. The holding period that distinguishes short-term from long-term capital gains varies depending on the type of asset.
For example, for stocks and bonds, a holding period of less than one year is considered short-term, while for real estate, a holding period of less than two years is considered short-term.
