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Capital Gain

Gain on the sale of a capital asset. Assets held for a long term often receive lower tax rates than ordinary income on the capital gains.

Example: Meaghan buys an investment property for $200,000 from which she earns ordinary income of $10,000 annually.  After three years, she sells the property for $240,000.  The $40,000 gain on sale is reported as a long-term capital gain on her tax return and is taxed at a rate that is less than the tax rate on the rental income she had earned earlier.