• Profit from a property sale is an example of capital gains.house blueprint and house model studio isolated image by dinostock from Fotolia.com
  
  A capital gain is the increase of the value of an asset, whether it is a stock, rental property, commercial property, or commodity share. However, it is not considered a capital gain for tax purposes until the asset is sold and the seller has the actual profit in his or her hand. Therefore, a house that dramatically rises in price, then falls to a dramatically lower price before it is sold is not a capital gain, as the owner did not realize any profit.
  
  

Stocks

• One example of capital gains are individual stocks (rather than mutual or index funds). If someone buys a certain amount worth of stock, then sells it at a higher rate, then he or she has made a capital gain.
  
  However, this is not without a caveat--the investor has to hold the stock for a certain amount of time, otherwise it is taxed at the (usually) higher income tax rate rather than the capital gains rate. This is because capital gains taxes are designed to encourage people to invest their money for longer periods of time in order to keep the economy stimulated.
  
  

Property

• An example of capital gains that will affect most people, whether they are interested in investment or not, is capital gains on the sale of a property. The same rules apply to property as apply to stocks--the profit on a property is subject to capital gains tax.
  
  This is important to note, though, because it is easy to be taken by surprise. After all, if you buy a house in 2005, get a job offer elsewhere in 2010, and sell the house for a higher price than you paid in 2005, you are not thinking like an investor, you are thinking like a homeowner. So be advised that capital gains apply to all realized capital gains--whether they were intended or not.
  
  

Capital Gains Offset by Losses

• Capital gains apply to your net capital gains, not just your capital gains on each individual investment you hold. This means that if you are about to make a major capital gain and have unrealized losses elsewhere in your portfolio, you can sell the investments that are losing money and subtract the amount you lost from the amount you made on your other investment.
  
  So as an example, let's assume that the homeowner in Section 2 bought his house in 2005 for $300,000 and, through some miracle, is able to sell it in 2010 for $500,000. He is looking at a substantial capital gains tax on the $200,000 difference.
  
  However, let's also assume that he bought $100,000 worth of stock in 2005 in a company that did not do well at all--his stock is only worth $50,000 in 2010. He can sell his $50,000 worth of stock, then subtract his $50,000 loss from the property profit that is subject to capital gains tax.
  
  There are two important things to note in this situation: one is that the loss of $50,000 is still not positive, and investors should try to avoid them; this is just a way to make a slightly positive outcome out of a negative situation.
  
  The second thing to note is that there are limits to how much of your capital gains can be offset by losses. Be sure to be aware of what this limit is.