What is a Capital Gain?

 

What is a capital gain?

Answer: A capital gain is an increase in the value of an asset (investment or real estate) that gives it a higher worth than the price you purchased it. Of course, the gain is not realized until the asset is sold. A capital gain may be short-term (one year or less) or long-term (more than one year) and must be claimed on income taxes.

While capital gains are generally associated with stocks and funds like index funds, mutual funds, etfs, in fact, a capital gain can occur on any security that is sold for a price higher than the purchase price that was paid for it. Realized capital gains and losses occur when an asset is sold and triggers a taxable event. Unrealized gains and losses, sometimes referred to as paper gains and losses, reflect an increase or decrease in an investment’s value but have not yet triggered a taxable event.