Question

Under which of the following circumstances may ‘capital gains’ arise?

1. When there is an increase in the sales of a product
2. When there is a natural increase in the value of the property owned
3. When you purchase a painting and there is a growth in its value due to increase in its popularity

Select the correct answer using the codes given below :

• A.
  1 only
• B.
  2 and 3 only
• C.
  2 only
• D.
  1, 2 and 3

Answer 1

The correct option is B

2 and 3 only

Capital gain is an increase in a capital asset's value. It is considered to be realized when you sell the asset. A capital gain may be short-term (one year or less) or long-term (more than one year) and must be claimed on income taxes.

Capital gains tax is only paid on realized gains after the asset is sold.Capital gains treatment only applies to “capital assets” such as stocks, bonds, painting, jewelry, coin collections, and real estate property.