Capital gain or loss in the real estate investment industry refers to the difference in the purchase price and the selling price of real property.
A capital gain occurs when you sell a real estate property for more than you purchased it. The gain is the amount by which the sale price exceeds the original purchase price. For instance, if you buy a property for $200,000 and sell it for $250,000, you would have a capital gain of $50,000.
A capital loss, on the other hand, occurs when you sell a real estate property for less than what you purchased it. The loss is the amount by which the sale price is less than the original purchase price. For example, if you buy a property for $200,000 and sell it for $150,000, you would have a capital loss of $50,000.
However, the calculation of capital gain or loss isn’t just as simple as subtracting the purchase price from the selling price. In real estate, you also take into account the cost basis, which includes the purchase price, plus any improvements made to the property, and certain costs related to buying or selling the property, like real estate agent commissions or certain closing costs. Capital gains or losses can have significant tax implications, which is why they’re such an important consideration in real estate investment.