Capital gain facts for kids

A capital gain is when you sell something for more money than you paid for it. Imagine you buy a collectible item for $10. If you later sell it for $15, the extra $5 you earned is a capital gain. It's like making a profit from selling your belongings or from putting money into investments.

What is a Capital Gain?

A capital gain is the profit you make when you sell an asset for a higher price than you originally paid. An asset is something valuable that you own. This could be almost anything, from a piece of land to shares in a company.

How Does it Work?

The idea is simple:

• You buy something.
• Its value goes up over time.
• You sell it for more than you paid.
• The difference is your capital gain.

This gain is often seen as a reward for taking a risk. You hoped the item would become more valuable, and it did!

Examples of Capital Gains

Capital gains can come from many different types of sales.

Selling Property

One common example is selling real estate, like a house or a piece of land. If your family bought a house for $200,000 and later sold it for $250,000, the $50,000 difference would be a capital gain. This happens because the value of property can increase over time due to things like new developments in the area or a growing economy.

Investing in Stocks

Another big way people get capital gains is by investing in stocks. A stock is a tiny piece of ownership in a company. When you buy a stock, you're hoping the company will do well. If the company grows and becomes more successful, its stock price might go up.

For example, if you buy 10 shares of a company's stock for $20 each (totaling $200), and later sell them for $30 each (totaling $300), you've made a capital gain of $100. This is a common way people try to grow their money over time.

Why are Capital Gains Important?

Capital gains are important for several reasons:

• Wealth Growth: They help people increase their wealth. If you make smart investments, capital gains can add up over many years.
• Economic Activity: They encourage people to invest in businesses and buy property. This helps money move around the economy, which can create jobs and new opportunities.
• Retirement Planning: Many adults use capital gains from investments to save for their retirement or for big future expenses like college tuition.

Capital Gains Tax

In many countries, when you make a capital gain, you might have to pay a special tax on that profit. This is called a capital gains tax. The amount of tax you pay can depend on how long you owned the asset before selling it. For example, gains from assets held for a short time might be taxed differently than those held for many years. This tax helps governments fund public services.

Images for kids

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  Hoard of ancient gold coins reminiscent of the Babylonian currency.

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  A visual representation of capital gain with coins, as the essential nature of capital gain is accrual of capital.

See also

In Spanish: Ganancia de capital para niños