capital gain


Definition of capital gain

: the increase in value of an asset (such as stock or real estate) between the time it is bought and the time it is sold

Examples of capital gain in a Sentence

Recent Examples on the Web

But Evers' plan included tax increases for manufacturers and on capital gains — ideas Republicans who control the Legislature have rejected. Patrick Marley, Milwaukee Journal Sentinel, "Republicans to cut income taxes as committee wraps up state budget," 13 June 2019 Folks in Connecticut pay taxes on capital gains at the same rate as ordinary income. The Editorial Board, WSJ, "Connecticut’s Tax Roulette," 7 May 2019 Oregon Senator Ron Wyden wants to tax capital gains as regular income, meaning rates up to 37%. The Editorial Board, WSJ, "Ron Wyden’s Plan to Drain Investors," 10 Apr. 2019 Investors who plow capital gains into Opportunity Zone projects can defer taxes on those gains up to 2026. Bernard Condon, The Seattle Times, "Amazon’s NYC home in ‘opportunity zone’ for Trump tax break," 13 Nov. 2018 That's going to five us a lot of capital gains revenue. Fox News, "Kevin Hassett talks corporate tax cut, rising wages," 24 Sep. 2018 Many upper-income investors face an additional tax of 3.8 percentage points on net investment income, driving up their actual top rate for capital gains to 23.8%—and that’s before state and local income taxes. Tom Herman, WSJ, "The Smart Ways to Be a Tax-Savvy Investor," 10 Feb. 2019 The incentives offer deferral, reduction, and potential elimination of some federal taxes for capital gains from investing in businesses, real estate, and other ventures in low-income communities. Jacob Adelman,, "Much of North and West Philly among Pa. areas nominated for new-investment tax break," 20 Apr. 2018 The top rate for long-term capital gains was left untouched at 20 percent., "Kudlow Plunges Into New Role as Trump’s Economic Warrior," 15 Mar. 2018

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'capital gain.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

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First Known Use of capital gain

1921, in the meaning defined above

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Last Updated

18 Jun 2019

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The first known use of capital gain was in 1921

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More Definitions for capital gain

capital gain


Financial Definition of capital gain

What It Is

A capital gain is an increase in the value of an investment. It is the difference between the purchase price (the basis) and the sale price of an asset.

How It Works

The formula for capital gain is:

Sale Price - Purchase Price = Capital Gain

Note that this formula assumes the sale price is higher than the purchase price. If an investor sells an asset for less than he or she paid, this is called a capital loss.

Let's assume you purchase 100 shares of XYZ Company for $1 per share. After three months, the share price increases to $5. This means the value of the investment has increased from $100 to $500, for a capital gain of $400.

Why It Matters

Capital gains are taxable, but only when they are realized. That is, they only become taxable when the asset is sold. Until that point, any gains are considered unrealized and are not taxable. The IRS considers nearly every asset owned by individuals and companies as capital assets and thus they are subject to capital gains taxes.

Taxpayers report capital gains on IRS Schedule D, but these gains are subject to different tax rates depending on whether they are short term or long term (and in some cases depending on the type of asset). In the example above, if you sold the XYZ Company shares after a year, the IRS would consider your $400 profit a long-term capital gain and would tax it at one of several lower, flat rates. However, if you sold the XYZ Company shares after just three months, the IRS would consider your $400 profit a short-term capital gain and tax that $400 at your ordinary income tax rate, which is generally higher than the long-term capital gains tax rate. This system encourages long-term investing, but there are many reasons an investor might want to sell an asset before a year has passed.

Some retirement vehicles, such as 401(k)s and IRAs, allow investors to buy and sell assets within these vehicles without becoming subject to capital gains tax. This tax deferral effectively gives investors a larger balance on which to compound interest or returns, with capital gains tax applying only when the investor begins to make withdrawals.

An investor's capital losses sometimes will offset all or a portion of his or her capital gains, lowering the investor's tax bill. There is a limit, however, to how much the investor can offset. Note also that the IRS does not treat the distributions of net realized long-term capital gains, like those from a mutual fund, as capital gains. The IRS treats those as ordinary dividends.

Source: Investing Answers

capital gain

Legal Definition of capital gain

see gain

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