An item that you own for investment or personal purposes, such as stocks, bonds or stamp collections. When you sell a capital asset, depending on the price you earn a capital gain or a capital loss . Gains are taxed at a special rate, and losses can be used in many cases to reduce the amount that is taxed. See also Capital Gain or Capital Loss . Capital Gain Profit on the sale of a capital asset .
Capital gains receive more favorable tax treatment than regular income.
See also Capital Asset . You receive capital gain distributions when the fund sells some of its assets and then passes along a portion to you. This distribution that you get is regarded by the IRS as a capital gain , not as ordinary dividends such as the interest you get from your bank account. It is important to separate capital gain distributions from ordinary dividends because capital gains are taxed more favorably. See also Ordinary Dividends .