Capital gains are profits from selling a capital asset.

Capital gain: that’s the term you’ll hear when someone pockets a profit from selling something they own. It’s a tidy little concept, but it matters a bunch, especially when you’re wrapping your head around taxes and what counts as income. So here’s the straight answer, plus a few easy-to-remember details you’ll spot in the Intuit Academy Tax Level 1 materials: Capital gain.

Let’s name that profit

What exactly is a capital gain? Put simply, it’s the money you make when you sell a capital asset for more than you paid for it. If you bought something for $2,000 and sold it for $3,000, your capital gain is $1,000. The key thing is the sale price has to exceed the purchase price. If the sale price is lower, that profit evaporates into a capital loss. But the question we’re asking here is about gains—so capital gain is the right term.

What counts as a capital asset?

Not every asset is a capital asset, but many everyday things are. Think stocks and bonds, real estate (like a second home or a rental property you own), and even collectibles such as art, coins, or vintage toys. The term is broad enough to cover a lot of what people own for investment or potential appreciation. Even certain business assets fall under the umbrella, though the specifics can get a tad more complex.

Here’s the thing: the way you profit from selling these items drives how the government tax rules apply. The same general idea—buy low, sell high—has different tax consequences depending on what you sold and how long you held it.

Measuring the gain: the basic math

Let me explain the simple formula that anchors capital gains:

Capital gain = Selling price minus your basis.

Your basis is usually what you paid for the asset, plus any costs you added to keep it in good condition or to acquire it (like brokerage fees on a stock purchase). If you sell and the result is a higher price than your basis, you’ve got a gain.

Hold time matters: short-term vs long-term

Here’s where the conversation starts to get interesting, because time changes the tax flavor.

• Short-term capital gains: If you held the asset for a year or less, most systems treat the gain as ordinary income. In plain terms, it’s taxed at the same rates as your regular earnings like wages or salary. The takeaway: quick flips tend to come with higher tax rates.

• Long-term capital gains: If you hold the asset longer than one year, the gain is usually taxed at a lower rate. This is intentional policy to encourage longer-term investing and stability in markets. The exact rate depends on your overall income, but the general idea is that patience can pay—both in wealth and in tax efficiency.

A quick example to bring it home

Let’s say you buy 100 shares of a tech stock for $20 each, so your basis is $2,000. A year later, you sell them for $30 each, bringing in $3,000. Your capital gain is $1,000. If you held those for more than a year, you’d likely face a lower tax rate on that $1,000 gain than if you’d sold after, say, six months.

Now, if you hadn’t done so well—that stock sold for $1,600 instead of $3,000—you’d have a capital loss of $400. Losses can offset gains, which lowers the amount that’s taxable. We’ll circle back to losses in a moment, because they’re part of the same tax story.

Tax implications: not the same as other income

Capital gains aren’t just another line on a worksheet. They’re a separate flavor of income, and that affects how you report and tax them.

• Long-term gains tend to have favorable rates compared to ordinary income. The rationale is simple: it rewards people who keep investments for a while and ride out the market’s ups and downs.

• Short-term gains are taxed like ordinary income, which can be higher depending on your total earnings for the year.

• Capital losses can offset gains. If your investments aren’t kind to you in a given year, the losses you realize can reduce the amount of gains you owe tax on. If your losses exceed your gains for the year, you can often use the excess to offset other income up to a limit, and in some places you can carry the loss forward to future years.

• Not all gains are taxed the same way in every jurisdiction. Rates can vary by your filing status, your total income, and even the type of asset. It’s worth remembering that the basic idea stays consistent: holding long-term usually pays off at tax time, while quick flips stack up as ordinary income.

A few common terms you’ll encounter

To keep things straight as you read through forms and explanations, here are a few terms you’ll see again and again:

• Basis: the amount you paid to acquire the asset, plus any costs invested to acquire or improve it.

• Selling price: what you actually got when you sold the asset.

• Capital gains: the profit you make from selling a capital asset, after subtracting basis and costs.

• Capital losses: when the sale price is less than the basis, resulting in a loss.

• Long-term vs short-term: the holding period determines which tax rate applies.

Why this matters for learners like you

Understanding capital gains isn’t just about passing a test. It’s about reading and interpreting real-world tax situations. When you sit down with any tax form, the term capital gain will pop up in a way that influences how you report income, how you calculate gains or losses, and how you plan investments with tax efficiency in mind.

Think of it as a simple linguistic key: learning the phrase “capital gain” unlocks other related terms like basis, holding period, and the distinction between shorts and longs. Once you’ve got that key, the rest of the vocab starts to fall into place. It’s a tiny toolkit that makes handling investments and taxation a lot less intimidating.

Common misconceptions worth clearing up

• Capital gains are not your gross income. Gross income is the total of everything you earned before deductions; capital gains are just the profits from selling capital assets.

• Not every sale of an asset triggers capital gains tax in the same way. The rate you pay depends on how long you held the asset, your income, and the asset type.

• A capital loss isn’t a “free pass” to zero taxes. Losses offset gains, which reduces tax liability, but the mechanics aren’t always one-to-one in every situation.

Real-world touchpoints you’ll recognize

Let’s bring this home with a couple of everyday touches. You might not be day-trading, but you probably own something that could become a capital asset at some point—a stock, a rental property, or a collectible. The moment you sell any of these assets, the question isn’t just “Did I profit?” It’s “What kind of profit is this, and what’s the tax story behind it?”

If you’ve ever bought a car as an investment, or purchased a piece of art as a collectible, you’ve touched capital gains, even if the asset isn’t a stock. The tax rules don’t care whether the asset sits in a brokerage account or on a wall in your living room; what matters is the difference between what you paid and what you sold it for, and how long you held it.

Connecting to Intuit Academy Tax Level 1 concepts

In the world of foundational tax knowledge, capital gains show up as a core building block. The way these gains are treated by the tax code is a good reminder that taxes aren’t just about one line item—they’re a web of rules that depend on timing, asset type, and overall income. As you explore the material in Intuit Academy, you’ll notice how capital gains link to other ideas like basis, holding period, and offsets. It’s a little ecosystem, really, where each term helps interpret the others.

A concise takeaway you can carry forward

• The profit you earn from selling a capital asset is called a capital gain.

• Capital gains are determined by selling price minus your basis.

• Holding time (short-term vs long-term) changes the tax rate you’ll face.

• Capital gains and losses interact: losses can offset gains, reducing taxable income.

• Different assets can have different tax implications, but the core idea remains consistent.

A final thought: curiosity helps more than you’d expect

If you’re ever unsure whether a sale produces a capital gain or something else, pause and map it out. Write down: what you paid, what you sold for, how long you held the asset, and what kind of asset it is. That quick mental map turns a potentially confusing moment into a clean, navigable calculation. And yes, a little patience with the numbers goes a long way.

If you’re exploring the foundational topics in the Intuit Academy Tax Level 1 world, you’ll find that this term—capital gain—keeps threading through. It’s the hinge on which many tax discussions swing. Get comfortable with it, and you’ll feel more confident about the broader landscape: assets, basis, holding periods, and the way the tax code rewards some kinds of wealth-building more than others.

So, let me leave you with the simple, enduring line: capital gain is the profit you realize when you sell a capital asset for more than you paid for it. That’s the essence. Everything else—whether it’s long-term rates, losses to offset gains, or the exact rate you’ll face—builds on that core idea. And as you keep exploring, you’ll see how this same sense of profit, timing, and value appears again and again in the stories taxes tell.