What are capital gains?

Capital gains refer to the increase in value that an asset has achieved when it is sold for more than its purchase price. This profit arises specifically from the sale of assets like stocks, real estate, and other investments. When an individual sells an asset, the difference between the selling price and the original purchase price is considered the capital gain.

For example, if an investor buys shares of stock for $50 and later sells them for $70, the capital gain would be $20. Capital gains can be classified as either short-term or long-term, depending on how long the asset was held before selling, which can affect the tax treatment of these gains.

While income from dividends, interest from bank savings, and losses from investments represent other aspects of financial activities, they do not encompass the concept of capital gains. Dividends are payments made to shareholders from a corporation's earnings, interest relates to earnings from savings or fixed-income investments, and losses reflect a decline in the asset's value, which is contrary to the idea of capital gains.