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Capital Gains Definition

What are Capital Gains?

A Brief Explanation of Capital Gains | Definition

A capital gain is a profit resulting from the sale of a capital asset. A capital asset can include stocks, bonds, and real estate ventures. Capital gains more broadly refer to the appreciation of the value of a financial asset but is only realized when the asset is sold. A capital gain occurs when an investor or investing company purchases a piece of real estate or other capital asset and resells the property at a higher value. If the asset depreciates and is resold at a lower value, a capital loss has occurred.

Private equity firms relationship with capital gains follows the same logic. When a firm invests in a target company and exits the investment at a profit, the firm has received capital gains. Capital gains are sometimes called investment income and are taxed differently than normal income in the United States. A capital gain is said to be short term if it is realized after one year or less and long term if it is realized after more than one year.

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