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Capital Gains

Capital gains refer to the increase in value of a real estate property over the period of ownership. When the property is sold, the difference between the purchase price (adjusted for improvements, if any) and the selling price is considered the capital gain.

For instance, if an investor purchases a property for $200,000 and later sells it for $300,000, the capital gain on that property would be $100,000. This profit may be subject to capital gains tax, which can vary based on factors like the owner’s income level, the length of time the property was held (short-term vs long-term), and specific country or state tax laws.

It’s important to note that capital gains are considered unrealized until the property is sold, at which point they become realized capital gains. Unrealized capital gains represent potential profit, while realized capital gains represent actual profit that has been made on the sale. In the context of real estate investment, capital gains can be a significant part of an investor’s return on investment, along with rental income or other types of income generated by the property.