What does capital gain refer to?

What does capital gain refer to?

• A. The income tax paid on profits
• B. The result of selling an asset for more than its purchase price
• C. A tax on corporate profits
• D. An expense related to asset depreciation

Answer: (B)

Capital gain refers to the increase in value that an asset experiences when it is sold for more than its original purchase price. This concept is fundamental in real estate and taxation, as it represents the profit realized from the sale of an investment property or other asset. For instance, if an investor buys a property for $200,000 and later sells it for $300,000, the capital gain would be $100,000. This gain is significant because it generally triggers tax implications, often requiring the seller to report the profit and potentially pay capital gains tax, depending on the holding period and tax jurisdiction. Understanding capital gains is crucial for real estate investors, as they must plan for the tax impact when they decide to sell an investment property. This makes option B the clear and accurate definition of capital gains, illustrating the essential relationship between selling price, purchase price, and realized profits.

Capital gain refers to the increase in value that an asset experiences when it is sold for more than its original purchase price. This concept is fundamental in real estate and taxation, as it represents the profit realized from the sale of an investment property or other asset. For instance, if an investor buys a property for $200,000 and later sells it for $300,000, the capital gain would be $100,000. This gain is significant because it generally triggers tax implications, often requiring the seller to report the profit and potentially pay capital gains tax, depending on the holding period and tax jurisdiction.

Understanding capital gains is crucial for real estate investors, as they must plan for the tax impact when they decide to sell an investment property. This makes option B the clear and accurate definition of capital gains, illustrating the essential relationship between selling price, purchase price, and realized profits.