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Capital Gain

Capital gain, within the context of the real estate investment industry, refers to the increase in the value of a real estate property or investment over time. This increase in value, when the property is sold, results in a profit for the investor, which is known as a capital gain.

This can be calculated by subtracting the original purchase price of the property and any associated acquisition costs (like closing costs, renovations, etc.) from the selling price of the property. If the result is a positive number, this represents a capital gain; if the result is negative, it would be a capital loss.

For example, if an investor bought a property for $200,000, spent $50,000 on renovations, and then sold the property for $300,000, the capital gain would be $50,000 ($300,000 – $200,000 – $50,000).

Capital gains are important to investors because they represent a return on their investment. They are also subject to taxation, and the specific rules and rates can vary based on several factors including the investor’s tax bracket and how long the property was held. In many jurisdictions, long-term capital gains (for properties held more than one year) are taxed at a lower rate than short-term capital gains.