What is the definition of a capital gain?

The correct definition of a capital gain is the profit from selling a capital asset. This concept is rooted in how investments such as stocks, bonds, real estate, and other tangible and intangible assets appreciate in value over time. When an individual or entity sells a capital asset for more than its purchase price, the difference between the selling price and the original purchase price is recognized as a capital gain.

This understanding is crucial for both individual and business financial planning, as capital gains may be subject to taxation. Furthermore, recognizing what constitutes a capital asset helps in distinguishing various types of financial transactions and their implications for tax purposes.

In contrast, the other options do not accurately define capital gains. Selling a liability does not generate a profit in the same way a capital asset does, and simply stating the total amount received from a sale does not necessarily indicate a profit, as it may include costs or be less than what was originally paid. Lastly, the amount paid for a new asset refers to the cost basis rather than gains realized from a sale.