What does 'capital gain or loss' indicate?

The term 'capital gain or loss' specifically refers to the change in value of an asset between the time it is purchased and the time it is sold. When an asset, such as stocks, real estate, or other investments, appreciates in value, the difference between the selling price and the original purchase price results in a capital gain. Conversely, if the asset's value declines, this leads to a capital loss.

This concept is crucial in investing as it directly impacts the overall return on investment. The focus is on the appreciation or depreciation of the asset's market value rather than the income it may generate (such as dividends or rental income), which would fall under a different classification. Understanding capital gains and losses is essential for tax considerations and assessing the performance of investments over time.