Capital gain

The profit made by selling an asset for more than it cost, as distinct from the income the asset paid you while you held it.

Example

Shares bought for 20,000 and sold for 32,000 produce a 12,000 capital gain.

Important

In many but not all jurisdictions a capital gain is taxed differently from income, and taxed only when the asset is sold. Both of those are facts about your own country, not universal rules.

Related terms

• Ordinary income — Money an investment pays you while you still own it - interest, dividends, rent, coupons - typically taxed in the year it is received.
• Capital loss — The result of selling an asset for less than it cost. In many systems a realised loss can be set against a realised gain to reduce the tax due.
• Taxable event — The moment a tax system treats something as having happened - most commonly a sale, rather than an increase in value while you still hold the asset.

Lessons that explain it

• A round trip through an auction house can cost 40 percent before the item has moved at all — Buyer's premium going in and seller's commission coming out compound into a breakeven hurdle most buyers never calculate - on top of holding costs and, in several jurisdictions, a higher tax rate reserved specifically for collectibles. This lesson is general information, not personal tax or legal advice, and rules vary by jurisdiction. (13 min)
• The only class here that charges you for holding it — There is no income at all - no coupon, no dividend, no rent. The return is the price change minus the cost of carry, which means a flat price is a loss, and the loss compounds. (10 min)
• Nothing arrives while you wait, and the wrapper sets the tax — Large declines with no income to cushion them, a running charge on an asset that pays nothing, a roll cost that hides inside a price - and in the United States, three wrappers around the same metal taxed three different ways. (12 min)
• No coupon, no rent, no earnings: the next buyer is the return — There is no income here by default and no cash flow to discount. Where a protocol does pay a yield, the useful question is not how much - it is where the money comes from, and sometimes the honest answer is other holders. (11 min)
• Total loss is an outcome here, not a tail — Four separate routes lead to zero, none of them exotic. Then the volatility arithmetic, the costs nobody totals, and a tax treatment that can leave a bill in currency against a position that has already fallen. (13 min)
• Unlimited loss on the short side, spreads on every trade, and tax rules that vary by contract — Derivatives add risks shares do not have - assignment, margin calls, unlimited short losses - plus higher trading costs and tax treatment that differs by product and country. (13 min)

All 578 terms in the Investing glossary