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Capital Gain

Definition

A capital gain refers to profit that results from a sale of a capital asset, such as stock, bond or real estate, where the sale price exceeds the purchase price. The gain is the difference between a higher selling price and a lower purchase price. Conversely, a capital loss arises if the proceeds from the sale of a capital asset are less than the purchase price.

Capital Gain is the profit that is made when the selling price of an asset exceeds the initial price it was purchased at. Capital Gain is the difference between the selling price and the cost price. In order to achieve a capital gain, the investor must sell the asset at a greater value than its original cost. A realized capital gain is an investment in which an asset has been sold at a significant profit. On the other hand, an unrealized capital gain is an investment where the asset has not been sold yet, but it is certain that selling it would entail a profit for the investor

In other words, capital gain is the increase in price worth of any capital asset that makes it higher in value than when it was originally purchased. If there is a decrease in the value of a capital asset, and it is sold at a lesser price relative to what it was purchased at, then we say that a capital loss has incurred.

Types of Capital Gain and Taxation

A capital gain might be achieved shortly after an investment or after years of the purchase. A short term capital gain is when any capital asset has been sold at a greater value within one year of its purchase. A long term capital gain is achieved when the asset is sold at a profit after one year of the purchase.

Most governments impose a tax on capital gains made by individuals and organizations. This is very common in the case of bonds, stock and properties. This may turn off a few investors because capital gain taxes might be so high that investors might feel that they get very little in turn for the great risk they make when investing. However, capital gain tax may vary greatly depending on the country’s fiscal policy, the duration of investment, the frequency, and the nature of the capital asset. In general, all long term capital assets, compared to regular income and GST taxes that are imposed by the government, are taxed at a significantly lower rate. This is done in order to encourage investment in the economy, an generate government revenue.


Further Reading


The capital gain lock-in effect and equilibrium returns
www.sciencedirect.com [PDF]
… capital gain lock-in is shown to depress the pre-tax returns of securities with accrued capital gains. This result implies slowly dissipating security return reversal, and may help explain empirical findings in the financial economics literature. As in the existing public finance …

The capital gain lock-in effect and long-horizon return reversalThe capital gain lock-in effect and long-horizon return reversal
www.sciencedirect.com [PDF]
… capital gain lock-in is shown to depress the pre-tax returns of securities with accrued capital gains. This result implies slowly dissipating security return reversal, and may help explain empirical findings in the financial economics literature. As in the existing public finance …

How burdensome are capital gains taxes?: Evidence from the United StatesHow burdensome are capital gains taxes?: Evidence from the United States
www.sciencedirect.com [PDF]
… capital gain lock-in is shown to depress the pre-tax returns of securities with accrued capital gains. This result implies slowly dissipating security return reversal, and may help explain empirical findings in the financial economics literature. As in the existing public finance …

Do capital gain tax rate increases affect individual investors' trading decisions?Do capital gain tax rate increases affect individual investors' trading decisions?
www.sciencedirect.com [PDF]
… capital gain lock-in is shown to depress the pre-tax returns of securities with accrued capital gains. This result implies slowly dissipating security return reversal, and may help explain empirical findings in the financial economics literature. As in the existing public finance …

How learning in financial markets generates excess volatility and predictability in stock pricesHow learning in financial markets generates excess volatility and predictability in stock prices
academic.oup.com [PDF]
… capital gain lock-in is shown to depress the pre-tax returns of securities with accrued capital gains. This result implies slowly dissipating security return reversal, and may help explain empirical findings in the financial economics literature. As in the existing public finance …

The capital gain lock-in effect and perfect substitutesThe capital gain lock-in effect and perfect substitutes
www.sciencedirect.com [PDF]
… capital gain lock-in is shown to depress the pre-tax returns of securities with accrued capital gains. This result implies slowly dissipating security return reversal, and may help explain empirical findings in the financial economics literature. As in the existing public finance …

Housing attributes associated with capital gainHousing attributes associated with capital gain
onlinelibrary.wiley.com [PDF]
… capital gain lock-in is shown to depress the pre-tax returns of securities with accrued capital gains. This result implies slowly dissipating security return reversal, and may help explain empirical findings in the financial economics literature. As in the existing public finance …



Q&A About Capital Gain


Is there a difference between realized and unrealized capital gains?

Yes, there are differences between them.

Are there different types of capital gains taxes?

Yes, there are different types.

What does capital gain mean?

Capital gain means a significant increase in value of any capital asset that makes it higher in value than when it was originally purchased.

How do governments tax on capital gains differ from country to country?

The way governments tax on capital gains differs from country to country depending on their fiscal policies and other factors such as duration, frequency, and nature of the investment assets involved. In general, all long term investments compared to regular income will get taxed less heavily because they usually involve greater risk but also greater potential returns. However, this may not always be true since countries with high inflation rates might impose higher taxes on long-term investments just so that investors can't take advantage of inflation by making short-term profits through buying low and selling high repeatedly without paying taxes until they sell their assets after several years (which could make them very rich). This is why many people prefer investing in real estate over stock markets even though real estate has lower returns than stock markets because real estate doesn't have much volatility like stock markets do which makes it easier to predict future values based on past trends which reduces risk significantly while still providing good returns if you invest wisely and hold

What are some examples of unrealized capital gains?

If you have held stocks for more than one year before selling them, then they would be considered as unrealized capital gains.

What is capital gain?

Capital Gain is the profit that is made when the selling price of an asset exceeds the initial price it was purchased at.

Who pays for capital gains taxes?

Individuals and corporations pay for capital gains taxes.

What does a capital gain tax apply to?

A capital gains tax applies to the profit realized on the sale of non-inventory assets.

Which countries do not impose a capital gains tax?

Bahrain, Barbados, Belize, Cayman Islands, Isle of Man, Jamaica, New Zealand, Sri Lanka and Sweden do not impose a capital gains tax.

What are some examples of realized capital gains?

Selling stocks or bonds at a profit within one year after purchase would be considered as realized capital gains.