Capital Gain

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Definition of a Capital Gain:

A Capital Gain occurs when a capital asset appreciates in value. 

Detailed Explanation:

A capital gain is realized when an asset is sold for a profit. For example, when a family purchases a home for $200,000 and sells it three years later for $350,000, the family has a capital gain of $150,000. 

How much would you pay for a share of stock of a company that does not pay a dividend? Would you pay $50? How about $800? It depends. If you anticipate the company’s earnings will grow and the stock value will follow, then you may buy a stock expecting a capital gain. However, if you expect the company’s earnings to remain flat then you would probably not purchase the stock. A capital gain is realized when the investment is sold.

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