What is a capital gain?

A capital gain refers specifically to the profit that is realized from the sale of an asset, such as a property, when it is sold for a higher price than its purchase price. This concept is fundamental in real estate and investments, wherein the value of an asset typically appreciates over time, enabling the owner to sell it for a profit.

When someone sells a property for more than the amount they paid for it, the difference is considered a capital gain. This gain can be subject to taxation, depending on various factors, including how long the asset was held before the sale. Understanding capital gains is crucial for investors and property owners, as it directly affects their financial outcomes and tax liabilities.

The other options do not accurately define a capital gain. For instance, rent payments collected over a year are income rather than gains from the sale of an asset, the amount invested in a business pertains to initial capital rather than profits, and losses incurred from an investment represent a decrease in value rather than a gain. Hence, the correct understanding of capital gain is essential for anyone involved in real estate or investment activities.