What are capital gains?

Capital gains refer to the profit that is realized when an asset is sold for a price higher than its purchase price. This increase in the value of the asset indicates that it has appreciated over time, resulting in a financial gain for the seller. For example, if an investor buys a stock for $50 and later sells it for $70, the capital gain would be $20. This gain can be taxed, depending on how long the asset was held before selling, which distinguishes between short-term and long-term capital gains.

Other choices describe different financial concepts. Losses from the sale of investments relate to capital losses, which may offset capital gains for tax purposes. Total revenue generated from all sales refers to gross income, while investment returns from dividend-paying stocks are related to regular dividend income, not capital gains. Thus, the definition of capital gains focuses specifically on the increase in value when an asset is sold at a profit.