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

To claim tax benefits, investors must put capital gains into special funds, which must keep at least 90% of their investments in stock, partnership interests or business property in these qualifying areas. Richard Rubin, WSJ, "New Hotel or Affordable Housing? Race Is On to Define ‘Opportunity Zones’," 13 July 2018 The rainy day fund takes capital gains that spike above a normal threshold and puts that money into a rainy day fund. sacbee, "Tax haircuts and concerts – or the rich? Californians consider the options," 9 July 2018 Big gains build up because the investor doesn’t want to sell and pay capital gains taxes. Liz Weston,, "High earners need to watch out for Medicare surcharge," 24 June 2018 The biggest driver of the increase was nonwithholding income tax collections, a volatile type of revenue that involves people making estimated payments on capital gains, dividends, partnerships and interest income. Gregory S. Schneider, Washington Post, "Virginia posts revenue surplus, but is economic growth or tax strategy?," 12 July 2018 If the shares have gone up enough, that means a capital gain on top of the interest earnings, plus gains from any future share-price increases. Jeff Brown, WSJ, "How Bond Convertibles Work," 8 July 2018 In the halls of Congress, the corridors of the administration, and the nerve centers of activist groups, forces are aligning behind a plan: a White House order to index capital gains for inflation. Kimberley A. Strassel, WSJ, "Trump Alone Can Cut Taxes," 12 July 2018 Most of the couple’s income came from capital gains. Erin Cox,, "Ben Jealous, Democratic candidate for Maryland governor, releases tax returns," 19 June 2018 In addition, the reform law didn't simplify other potentially complex areas, such as sorting through capital gains/losses or assessing eligibility to make deductible contributions to Individual Retirement Accounts. 2. Russ Wiles, azcentral, "5 myths and misconceptions about new income-tax rules," 3 June 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

8 Oct 2018

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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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