What is a capital gain?

A capital gain refers specifically to the profit made from selling an asset at a price higher than its purchase price. This increase in value represents the financial benefit received from the investment, demonstrating the concept that an asset can appreciate over time. Understanding capital gains is crucial for investors, particularly in real estate, as it directly affects their overall return on investment.

In the context of real estate, if an investor buys a property for a certain amount and later sells it for a higher price, the difference between the selling price and the original purchase price is considered a capital gain. This gain is subject to capital gains tax, depending on the holding period and the specific tax laws in place.

The other options, while related to financial terms and real estate, do not accurately define capital gain. The loss from selling an asset would be referred to as a capital loss, a tax on property owners pertains to taxation rather than profit, and the initial investment in real estate describes the purchase price rather than the profits resulting from its sale. Thus, the definition of capital gain is centered on the profit aspect, making it a key concept in investment discussions.