Capital Gains Law and Legal Definition

A capital gain is an increase in the value of a capital asset such as common stock. A capital gain is the increased difference between the purchase price and the sale price realized when a capital asset is sold. A capital gain may be short-term (one year or less) or long-term (more than one year).

Capital gains are subject to income taxes, but there are certain exceptions or deferrals to reduce capital gains taxes. When a person dies, the person an heir may take property with a "stepped up basis", whereby the original cost is declared to be the value on the day of the owner's death and avoid capital gains tax. Another example is when real property owners receive a one-time $125,000 deduction from the profit on sale of real property if the seller is over 55

Non-recurring capital gains are those which are from a one-time occurence, such as a final liquidation of an asset. Recurring capital gains are investment profits whose payments are received on a repeated basis, such as dividends and gains on sales.