Capital gains - Definition and Overview

In finance, a capital gain is profit that is realized from the sale of an asset that was previously purchased at a lower price. The most common capital gains are realized from the sale of stocks, bonds, and property. (If the sale of the asset had yielded a loss rather than a profit, this loss would be called a capital loss.)

Capital gains are often exempt from income tax, in which case it may be important to distinguish capital gains (or losses) realised on the sale of fixed assets (long-life assets that form part of the structure of a business, such as real property) from trading profits or losses realised on the sale of trading stock (short-life assets that are quickly sold on).

In many jurisdictions, including the United States and the United Kingdom, capital gains are subject to a capital gains tax.