The gains that an entity earns on the sale/ disposal of an asset (in economic terms, a capital asset) which has increased in value over the holding period (the increase in value corresponds to a specific type of gains known as capital gains). An asset may be tangible (property, a business,  etc.) or intangible such as shares (investment securities). Capital gain is the net profit that an entity makes after selling a capital asset for a price exceeding purchase price (original cost).

The entire amount earned from selling a capital asset is considered “taxable income“. Capital gain can be realized or unrealized. The realized capital gain arises from the final sale (derecognition) of an asset or investment that has increased in value. Unrealized capital gains are those that have not yet been realized because the entity has not sold or exchanged the assets whose value increased over a holding period.

For example, if an entity buys stock for $1,000 and sell it for $1,300, it is said to have made a capital gain of $300.