What are capital gains?

Capital gains refer specifically to the profits that an individual or entity recognizes from the sale of an asset or investment when the selling price exceeds the purchase price. This concept is central to understanding investment performance and financial planning because it directly relates to how investments are valued and how returns are generated over time.

When an asset, such as stocks, real estate, or other investments, is sold for a price higher than what it was originally purchased for, the difference represents the capital gain. This gain can be categorized into short-term or long-term based on how long the asset was held before the sale, which also influences the tax treatment of these gains. Investors must pay attention to their capital gains because they are a critical component of overall investment returns and can impact financial strategies and taxation.

The other options describe different financial concepts: losses from asset sales reflect the opposite scenario, taxes related to capital gains address the obligation one has upon realizing a profit, and long-term investments without immediate returns don't encapsulate the definition of capital gains. Thus, the definition of capital gains is appropriately framed as profits from the sale of assets or investments that exceed their purchase price.