How is a capital gain defined?

A capital gain is defined as the difference between the sales price of an asset and its purchase price when that difference is positive. This definition is fundamental in fiscal terms for understanding the profit made from the sale of an asset, such as stocks, real estate, or other investments. When an asset is sold for more than what was originally paid for it, the resulting increase in value is recognized as a gain and is subject to capital gains tax in many jurisdictions.

This concept is significant because it directly impacts investment strategies and tax liabilities. Investors often aim to realize capital gains from their investments, which reflect an appreciation in value over time. Understanding how capital gains are calculated is essential for evaluating the performance of investments and planning for tax obligations related to these gains.

The other options do not define capital gains accurately. Total expenses less income pertains to cash flow, not capital gains. A decrease in asset value indicates a capital loss, which is the opposite of a capital gain. The amount retained after selling a business may involve various financial metrics, including profits, overhead costs, and expenses, but it does not specifically address capital gains as they pertain to asset transactions.