Which of the following best describes a capital gain?

A capital gain is best described as the profit derived from the sale of an asset when the selling price exceeds the purchase price. This profit represents the increase in value that the asset has accrued over time. Essentially, if you buy an asset for a certain amount and later sell it for more than that initial amount, the difference is your capital gain.

This understanding is crucial for tax purposes, as capital gains are often subject to taxes at different rates depending on various factors, including the holding period of the asset. Recognizing a capital gain helps taxpayers determine their potential tax liabilities and informs investment strategies.

Other options do not accurately reflect the definition of a capital gain. For instance, the first option describes what happens in a capital loss situation rather than a gain. The third option refers to interest income, which is a different concept altogether, while the fourth option simply states the initial investment without addressing the profit realized upon selling the asset.