Capital gains are the profits earned from selling an asset at a higher price than its original purchase cost. They represent the positive difference between the asset’s selling price and its initial purchase price. Capital gains apply to a range of assets, such as stocks, real estate, and personal items like artwork or collectibles.

Examples:

1. Stock Investment:
   • Suppose you buy shares of a company for $1,000. Over time, the stock’s value increases, and you sell those shares for $1,500. The capital gain in this case is $500 ($1,500 – $1,000).
2. Real Estate:
   • You purchase a property for $200,000 and, after several years, sell it for $300,000. The capital gain here would be $100,000 ($300,000 – $200,000).
3. Collectibles:
   • Imagine buying a rare painting for $5,000. Years later, you sell it at an auction for $15,000. Your capital gain on this sale is $10,000 ($15,000 – $5,000).

Capital gains are the profit from selling an asset at a higher price than the original purchase price. They are generally categorized as short-term or long-term, based on how long the asset was held. Capital gains are often subject to taxation, with long-term gains frequently taxed at a lower rate to encourage long-term investments. In contrast, short-term gains, from assets held for less than a year, are typically taxed at a higher rate.