Definition
Capital Gains are the profits realized from selling an investment or asset at a higher price than its purchase cost. Common assets include stocks, bonds, real estate, and other property. Capital gains are typically subject to taxation.
Why It Matters
Capital gains influence investment decisions, savings, and taxation policy. They represent a key mechanism for wealth accumulation and are a critical source of revenue for governments. Understanding capital gains is essential for personal finance, portfolio management, and economic policy.
Example
If an investor buys a stock for $1,000 and later sells it for $1,500, the $500 profit is a capital gain. Similarly, selling a property for more than its purchase price generates a capital gain. These gains are reported on tax returns and may be subject to different tax rates depending on holding periods.