Capital Gain

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rjonesx
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Definition

A capital gain refers to profit that results from a sale of a capital asset, such as stock, bond or real estate, where the sale price exceeds the purchase price. The gain is the difference between a higher selling price and a lower purchase price. Conversely, a capital loss arises if the proceeds from the sale of a capital asset are less than the purchase price.

Capital Gain

Capital Gain is the profit that is made when the selling price of an asset exceeds the initial price it was purchased at. Capital Gain is the difference between the selling price and the cost price. In order to achieve a capital gain, the investor must sell the asset at a greater value than its original cost. A realized capital gain is an investment in which an asset has been sold at a significant profit. On the other hand, an unrealized capital gain is an investment where the asset has not been sold yet, but it is certain that selling it would entail a profit for the investor

In other words, capital gain is the increase in price worth of any capital asset that makes it higher in value than when it was originally purchased. If there is a decrease in the value of a capital asset, and it is sold at a lesser price relative to what it was purchased at, then we say that a capital loss has incurred.

Types of Capital Gain and Taxation

A capital gain might be achieved shortly after an investment or after years of the purchase. A short term capital gain is when any capital asset has been sold at a greater value within one year of its purchase. A long term capital gain is achieved when the asset is sold at a profit after one year of the purchase.

Most governments impose a tax on capital gains made by individuals and organizations. This is very common in the case of bonds, stock and properties. This may turn off a few investors because capital gain taxes might be so high that investors might feel that they get very little in turn for the great risk they make when investing. However, capital gain tax may vary greatly depending on the country’s fiscal policy, the duration of investment, the frequency, and the nature of the capital asset. In general, all long term capital assets, compared to regular income and GST taxes that are imposed by the government, are taxed at a significantly lower rate. This is done in order to encourage investment in the economy, an generate government revenue.

Further Reading

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