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 And his income that is taxable pays at capital gains or qualified dividend rates. Scott Burns, Dallas News, "The rich are different — and taxes are a big part of the story," 2 Feb. 2020 Hundreds of billions of dollars already available and an estimated $6 trillion in unrealized capital gains in the U.S. stock market are eligible for qualifying equity opportunity zone investments. Ryan Frazier, The Denver Post, "Frazier: Opportunity Zone investors, don’t screw this up for Colorado," 11 Dec. 2019 Trump last month floated the idea of indexing capital gains to inflation or cutting payroll taxes as a way to jolt the U.S. economy, which has shown warning signs of a slowdown. Jordan Fabian, Fortune, "Trump Says He Plans to Unveil Middle-Class Tax Cut in Next Year," 12 Sep. 2019 While those cuts would push up bond prices, a 5%-plus drop in the rupee so far this year will undercut the dollar value of capital gains for global investors. Andy Mukherjee | Bloomberg, Washington Post, "Keep Your Eye on the Road, India Investor," 10 Sep. 2019 That includes $284,000 in tax breaks — money the federal government would have collected from taxpayers with capital gains but for the program. Jeff Ernsthausen, ProPublica, "One Trump Tax Cut Was Meant to Help the Poor. A Billionaire Ended Up Winning Big.," 19 June 2019 The investment wouldn’t be taxed on future capital gains if held for 10 years. Houston Chronicle, "Trader Joe’s, Whole Foods boost home values: report," 13 Sep. 2019 Then there’s the exemption for unearned income such as dividends and capital gains. Michael Hiltzik, Los Angeles Times, "Column: 1,200 Americans already paid their 2020 Social Security tax. You’ll be paying all year," 2 Jan. 2020 Here’s the bottom line for FOMO enthusiasts: In total, $1,000 invested in each of these ten companies would have yielded a collective $265,669 in returns through capital gains and dividends. Kevin Kelleher, Fortune, "What a $1,000 Investment in Netflix and 9 Other Top Stocks a Decade Ago Would Be Worth Today," 28 Dec. 2019

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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Time Traveler for capital gain

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The first known use of capital gain was in 1921

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Statistics for capital gain

Last Updated

12 Feb 2020

Cite this Entry

“Capital gain.” Dictionary, Merriam-Webster, Accessed 23 Feb. 2020.

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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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