What are capital gains?

Capital gains refer specifically to the profits that an individual or corporation realizes from the sale of an asset or investment when the sale price exceeds the original purchase price. This concept is pivotal in taxation, as capital gains are generally subject to income tax depending on how long the asset was held before it was sold. If the asset was held for more than a year, it is typically classified as a long-term capital gain, often enjoying lower tax rates to encourage investment.

This understanding differentiates capital gains from other financial terms or situations, such as losses from asset depreciation, which involve a decrease in value rather than an increase, or income generated from regular business operations, which pertains to revenue from ongoing business activities rather than the sale of specific assets. Capital gains highlight profitable transitions in asset management and investment strategies, emphasizing the importance of asset appreciation in a corporate income tax context.