Capital gains are profits that an individual or a business earns from selling a capital asset, such as stocks or real estate. Capital gains occur when the asset's sale price is greater than the original purchase price. For example, if you bought your home for $250,000 and sold it for $300,000 when you moved, you have seen a capital gain of $50,000.
Like other investments, ETFs can generate capital gains when sold for a higher price than you purchased them. These capital gains are subject to taxation by the government and may be taxed at the capital gains rate or your standard income tax rate. As noted above, the distributions you receive from ETFs may qualify for the lower capital gains tax rate depending on the fund's management.