What is a capital gain?

A capital gain refers specifically to the increase in value of an asset that occurs when it is sold for a price higher than its original purchase price. This concept is particularly relevant in real estate, stocks, and other investments. When an asset appreciates in value and the owner decides to sell it, the profit realized from that sale is classified as a capital gain.

Understanding capital gains is crucial for investors, as they can impact tax liabilities. In many jurisdictions, including Colorado, capital gains are taxed differently than ordinary income, with specific rules regarding long-term versus short-term gains. This distinction is important for financial planning and investment strategies.

The other definitions provided relate to different financial concepts: the total value of an asset after depreciation focuses on the loss of value over time, the income generated from an investment pertains to the earnings received (e.g., dividends or interest), and the expenses incurred when selling a property relate to the costs associated with the sale process, which do not represent profit. Thus, the definition of capital gain is distinctly tied to the profit made from the sale of an asset.