What are capital gains in the context of real estate?

In the context of real estate, capital gains refer to the profits that arise from the sale of a property when the selling price exceeds the original purchase price, minus any costs associated with the sale. This can include expenses such as repairs, commissions, and closing costs, which are subtracted from the total gain to determine the actual profit realized.

When a property appreciates in value over time and is sold for more than its acquisition cost, the difference represents the capital gain. This concept is crucial for real estate investors and homeowners alike, as it impacts financial decisions and tax obligations. Capital gains can be long-term or short-term, depending on how long the property has been held, with long-term gains often taxed at a lower rate.

Understanding capital gains is significant for anyone involved in buying or selling real estate, as it directly affects profitability and financial planning.