Capital Gain Tax in the context of the real estate investment industry refers to a type of tax that is levied on the profit (the capital gain) realized from the sale of a real estate property or investment. The tax is only applied when the property is sold, and not when it’s held by an investor.

The capital gain is calculated by subtracting the original purchase price (and any other associated costs such as renovation or improvement expenses, transaction costs, etc.) from the sale price of the property. If the sale price exceeds the original purchase price and costs, the investor has made a profit or capital gain, which is subject to capital gains tax.

The rate of the capital gains tax can vary depending on several factors, such as how long the property was held before being sold, the investor’s income level, and the specific tax laws in the country or state where the investor resides.

There are two types of capital gains:

Short-Term Capital Gain: If the property was owned for one year or less before it was sold, the capital gain is considered short-term and is usually taxed at the individual’s regular income tax rate.
Long-Term Capital Gain: If the property was owned for more than one year, the capital gain is considered long-term. In many countries, including the U.S., long-term capital gains tax rates are typically lower than the regular income tax rates.

However, various tax strategies and provisions such as the 1031 exchange in the U.S. may enable real estate investors to defer capital gains taxes under certain circumstances.