Capital Gain

Capital gain is the profit realized from the sale of an asset, such as stocks, bonds, real estate, or other investments, that have increased in value over time. It is the difference between the purchase price (cost basis) of the asset and the selling price.

Example #1

For example, if you buy a stock for $100 and sell it later for $150, you have a capital gain of $50.

Example #2

Another example is purchasing a piece of real estate for $200,000 and selling it for $250,000, resulting in a capital gain of $50,000.

Misuse

One misuse of capital gains is engaging in illegal tax evasion by underreporting or not reporting capital gains to avoid paying taxes on the profits. This can lead to unfair advantages for individuals or businesses who exploit the system, depriving the government of necessary tax revenue.

Benefits

Capital gains can incentivize investment in assets that have the potential to appreciate in value over time. This encourages individuals to participate in the financial markets, fostering economic growth and wealth creation.

Conclusion

Understanding capital gains is important for consumers and employees as it can impact their investment decisions and tax obligations. It's crucial to report capital gains accurately and ethically to comply with tax laws and contribute to a fair and transparent marketplace.

Related Terms

AssetProfitRevenueTaxable IncomeCapital Gains Tax