What is capital gain?

Capital gain refers to the profit that an individual or entity realizes when they sell a property for a higher price than the original purchase price. This increase in value can be the result of various factors, such as market demand, property improvements, or changes in the neighborhood. The key aspect of capital gain is that it represents the financial benefit obtained from the appreciation of an asset over time.

Understanding this concept is crucial, especially in the context of real estate assessments and property investments, as capital gains taxes can significantly affect the net profit from the sale. Recognizing capital gain helps property owners and investors make informed decisions regarding the timing of sale, potential reinvestments, and financial planning related to properties.

In contrast, the other options do not align with the definition of capital gain. A decrease in property value doesn’t yield profit; rather, it results in a capital loss. The cost of property improvements is related to increasing the property’s value but does not itself represent a profit. Lastly, the total expenses incurred during ownership, while important for determining overall profitability, does not specifically address the concept of capital gain, as it focuses more on costs rather than the resulting profits from property transactions.