Published Jan 25, 2023 A capital gain is the profit that an investor realizes when they sell an asset for more than they paid for it. That means it is the difference between the purchase price and the sale price of an asset. Capital gains can be realized on a variety of assets, such as stocks, bonds, real estate, digital currencies (e.g., Bitcoin and Ethereum), and other investments. To illustrate this, let’s look at an example. Imagine an investor buys 100 shares of an imaginary company called ABC Inc. for USD 10 per share. That means they pay a total of USD 1,000 for the shares. Now, assume the company’s stock price increases to USD 15 per share. If the investor decides to sell their shares at this point, they will realize a capital gain of USD 500. That is the difference between the purchase price of USD 1,000 and the sale price of USD 1,500. Note that in many jurisdictions, they’ll have to pay a capital gains tax on that profit, depending on whether they’ve held the asset for a short term (i.e., less than a year) or long term (i.e., more than a year) before the sale. Capital gains are an important source of income for investors. They are taxed differently than regular income, which means they can be a great way to reduce one’s tax burden. That is why it is important to understand how capital gains are taxed and how to maximize long-term capital gains. In addition to that, capital gains can also be used to measure the performance of an investment. That means they can be used to compare the performance of different investments and to determine which ones are the most profitable.Definition of Capital Gain
Example
Why Capital Gain Matters
Financial Economics