What Is a Capital Gain?

What Is a Capital Gain?

A capital gain is the rise in the value of a capital asset that is achieved when it is sold. Simply put, a capital gain happens when you sell an asset for a higher price than its purchase cost.

The Internal Revenue Service (IRS) taxes individuals on capital gains under certain circumstances.

Nearly any asset you possess is considered a capital asset. This category includes investments like stocks, bonds, or real estate, as well as personal items such as furniture or a boat.

There are two categories of capital gains:

• Short-term: Profits earned from selling assets that you held for one year or less

  
  

• Long-term: Gains realized on assets that you've sold after holding them for more than one year

Broadly speaking, whenever you sell a capital asset for more than the price at which you originally bought it, you have a capital gain. This concept is fundamental in the realm of finance and investing, as it represents the profit made from the sale of an asset that has appreciated in value over time. Capital assets can include a wide range of items such as real estate properties, stocks, bonds, and even collectibles like art or antiques. The capital gain is calculated by taking the difference between the selling price and the original purchase price, often referred to as the 'basis' in the asset. For example, if an investor purchases property for INR. 10,00,000 and later sells those shares for INR.15,00,000 the capital gain realized from that transaction would be INR. 5,00,000. This gain is significant because it not only reflects the successful investment strategy of the investor but also impacts the overall financial landscape, including tax obligations. The implications of capital gains extend beyond individual investors; they can influence market trends, economic conditions, and government tax revenues. Therefore, comprehending the nuances of capital gains is essential for anyone engaged in the buying or selling of capital assets.

Anyone who owns assets they might sell should be aware of when and how capital gains taxes are applicable.