What is capital gain? Capital gain is an economic concept generally defined as the increase in profit made on the sale of an actual asset that has increased more than the initial purchase price paid for it. An asset can consist of tangible personal property, a costly car, an expensive business, or other intangible property like stocks.
When an entity sells its assets for a gain, it does not mean it made an illegal transaction. Instead, it simply realized a higher gain for the same amount of money invested. The basic definition is an asset is something you have bought with money. You increase the value of the asset when you resell it for a profit. Of course, the more valuable the asset, the more it can be expected to sell for.
There are many different kinds of gains. These include personal gains, capital gains from the ownership of real estate, and other gains that are recognized by the accounting principles used by the US GAAP (Generally Accepted Accounting Principles). The kind of gain that is referred to as a capital gain is the gain on the sale or transfer of an ownership interest. You can also gain profits when you purchase shares of stock or other assets from someone else. This is called an equity transaction.
Your capital gain statement will record the gain on the date of sale. If there are outstanding debts on this date, they will also be included in this statement. For the statement to be complete, the gross sale price must be recorded along with the outstanding debt balances.
To calculate your gain or loss, divide the total purchase price by the amount you paid and multiply it by your net profit for that sale. If you financed the purchase, the mortgage amount will also be entered in the gain statement. If you sold property through a lender, you will need to include the proceeds from the loan in your gain statement.
Your gain statement will show the gain on the date of sale unless you sold the property within a year. Then, the amount reported would be less than the net gain for the year. The mortgage amount is figured by taking the balance of the mortgage plus the amount for interest and principal paid or repaid. It should be noted that if the amount of the mortgage loan exceeds the outstanding principal balance, the lender may pay off the mortgage early or may not be able to keep the property in lien. If the amount outstanding equals or exceeds the mortgage amount, the property will be sold and the net gain will be calculated.
Net gain is the difference between the net gain from the sale and the total amount due on the mortgage. When you sell a property, you have to include all gains from the sale. If there is any amount that is paid in down payment or fees, it must also be added to the gross gain. There are many other small things that can be reported in your main statement. However, if you have any net gain, it will usually equal the mortgage amount.
As you can see, there is more to what is capital gain than meets the eye. It does not always happen that way, when you sell a house. You may be entitled to have the entire gain reported to you on your income tax return. Also, you may be able to deduct the cost of preparing the gain statement. This will help you maximize your deductions. Now that you know what is capital gain, you should be able to take full advantage of it.