Capital gain is a profit that results from investing in a capital asset, such as stock, bond, or real estate. When you sell an asset for less than its purchase price, on the other hand, you incur a capital loss. Several factors determine the nature of your capital gain (or loss), including the type of asset and the duration of ownership.
The term capital gain is used to describe the profit earned from buying an investment or other asset at one price and selling it at a different, higher price. For instance, if you bought a real estate for $350,000 and sold it for $500,000, you would need to report total capital gains of $150,000 ($500,000 selling price – $350,000 cost basis = $300,000 capital gains profit).
Capital gain can be earned on stocks, bonds, mutual funds, works of art, real estate, or virtually anything else that can be considered an investment.
The Taxes on capital gain varies depending on:
1) type of investment,
2) length of time you held the investment, and
3) whether you plan to offset those gains by other capital losses.