What defines a capital gain?

A capital gain is defined as the profit that is realized when an asset, such as stocks, real estate, or other investments, is sold for a price that is higher than its purchase price. This gain is an important concept in finance and investing as it represents the economic benefit obtained from appreciating asset values.

When an individual or organization sells an asset for more than it was acquired, the difference between the selling price and the original purchase price is recognized as a capital gain. This can significantly affect an investor’s tax situation, as capital gains are often subject to taxation, depending on how long the asset was held before the sale.

This distinction is crucial as it emphasizes the aspect of profit rather than loss or decline in value. Other options describe scenarios that do not represent capital gains, such as a loss from selling an asset or a decrease in property value, which would instead indicate a capital loss. The value of reinvested earnings pertains more to retained profits within a business rather than capital gains from asset sales.