capital gain

noun

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

Thenceforth the Lehmans sought at every turn to see market opportunity where others had not, and even to transform national and global catastrophe into triumphant capital gain. Hamish Bowles, Vogue, "What’s on at the Theater? A Comprehensive Guide to London’s Best Shows This Fall," 18 Oct. 2018 To keep the peace, the Queen from then on decided that she — alongside Prince Charles — would voluntarily pay income and capital gains taxes, Business Insider reports. Kayla Keegan, Good Housekeeping, "A Look at How Queen Elizabeth Has Amassed Such a Large Net Worth," 26 July 2018 The trusts generally need to pay taxes on any income or gains, but if there are stakes for private businesses, capital gains taxes aren't owed until the business is sold. Ben Steverman, latimes.com, "It’s a great time to be a wealthy heir after Trump's tax overhaul," 16 May 2018 But there’s no question that the state is benefiting from a booming economy and capital gains resulting from last year’s strong stock market performance, Garosi said. Kathleen Pender, San Francisco Chronicle, "California tax revenues soar ahead of projections as economy booms," 23 Apr. 2018 Revenue from a sales tax fluctuates far less than the tax on capital gains. sacbee, "Tax haircuts and concerts – or the rich? Californians consider the options," 9 July 2018 Of course, that’s not necessarily an excuse — accounts with unrealized capital gains need to be handled very carefully by an advisor. Liz Weston, latimes.com, "High earners need to watch out for Medicare surcharge," 24 June 2018 The couple netted more than $125,000 in capital gains and were paid nearly $33,000 in dividends from investments. Jesse Mckinley, New York Times, "Cynthia Nixon’s Tax Return Shows $1.3 Million in Earnings," 4 May 2018 The tax bill included a provision introduced by Sen. Tim Scott, R-S.C., to create an avenue for the more than $2 trillion in unused capital gains in our country to flow to distressed and rural areas. Anchorage Daily News, "Opportunity zones in Alaska could be a game changer for Alaska, but the time is short to act," 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

3 Dec 2018

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Time Traveler for capital gain

The first known use of capital gain was in 1921

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More Definitions for capital gain

capital gain

noun

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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