What does the term "capital gains" refer to?

The term "capital gains" specifically refers to the profit that an individual makes from the sale of an asset, such as real estate, when its value has increased since the time of purchase. This profit is significant because it represents the financial gain realized when an asset is sold for more than its original purchase price. For instance, if a property was bought for $200,000 and sold for $300,000, the capital gain would be $100,000.

This concept is particularly relevant in real estate transactions, as it affects how individuals and investors manage their finances and understand potential returns on their investments. In many jurisdictions, capital gains may also be subject to taxation, which varies based on the holding period of the asset and local tax laws. Understanding capital gains is essential for real estate professionals, as it informs clients about potential tax implications and investment outcomes when buying or selling properties.