In order to understand what a capital gain is, we first assume that everything we own, for personal use, pleasure, investment purposes, and private uses is treated by the IRS as a capital asset. When you sell this asset for a profit, the difference in the price you paid (its cost basis) and the sales price is the capital gain. You have a capital gain if you sold an asset for more than what you paid for it, and a capital loss if you sold the asset for less than your basis. If the difference is positive—meaning the asset’s value increased—it is called a capital gain. If the asset’s price decreases from the time of purchase, then it is called a capital loss. Both situations are given attention when you file your taxes each year, and must be reported to the IRS for each filing year.