What is a capital gain?

A capital gain refers specifically to the profit realized from the sale of an asset when its selling price exceeds its purchase price. This gain reflects the increase in value that the asset has experienced over time, and it is a key concept in personal finance, especially in the context of investments such as stocks, real estate, or other forms of property.

When an individual sells an asset, the difference between the sale price and the original purchase price is what constitutes the capital gain. This gain is typically subject to taxation, depending on how long the asset was held and the prevailing tax laws. Understanding capital gains is crucial for investors as it directly influences their financial return and tax strategy. Other options relate to different financial concepts; for example, losses, interest earned, and business revenues do not define capital gains.