Capital gain

A capital gain is the benefit obtained by the sale of various assets compared to the acquisition price of that asset. When the sale price exceeds the acquisition price there will be a capital gain; however, when the sale price is lower than the acquisition price there will be a loss of capital.

From the previous definition, we find a series of concepts that need to be analyzed.

In which assets can a capital gain be obtained?

The assets where a capital gain can be generated are the following

  • Financial assetsThese assets are stocks , bonds , obligations, etc. In operations with these financial assets is where most capital gains are generated.
  • Real estateThe other assets where capital gains can be generated are in real estate transactions, such as homes, plots, premises, etc.

How is the capital gain obtained? 

As we have commented previously, the capital gain (or loss of capital) is calculated as a comparison between two magnitudes: the price for which the asset is acquired and the price for which it is sold. The difficulty lies in the valuation of these prices, a fundamental aspect in order to obtain the capital gain correctly.

It is important to differentiate between the acquisition price and the sale price. Usually the acquisition price is the cost we have borne when acquiring the asset plus all the expenses that are necessary for that sale to take place. On the other hand, the sale price is usually the amount we receive from the buyer. However, this is not always the case: sometimes, the legislator establishes that certain assets must be valued at market value or by criteria other than the above. Therefore, it will be necessary to take into account what the law establishes for the valuation of acquisition and sale of the assets.

When there is capital gain

Finally, another fundamental aspect is that there is only capital gain if the sale materializes. For example, we acquired shares for € 100 on December 1. As of December 31, the shares have been revalued and their value is € 150, but we do not sell them.

Although there has been an increase in the value of the shares,   there is no capital gain because the shares have not been sold. If at December 31 we sell them for € 150, there would be a capital gain of € 50 because we have sold them (difference between the sale price, which is € 150, and the acquisition price, which is € 100) .

Capital gains taxes

When a capital gain occurs, a benefit is being obtained, that is, an increase in equity. Public finances in all countries usually tax any kind of benefit, including capital gains.

If the capital gain is obtained by a company, it will have to be declared in the corporate income tax, or if it is obtained by an individual, it will be declared in its income tax . There are even countries that establish a special tax for these gains (usually referred to as “capital gains tax”).

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