Whats the difference between an ordinary gain and a capital gain?

Answer 1

Capital gains generally enjoy lower tax rates - 15% if you are in the 25% band or above and 5% for lower than that. Ordinary income is taxed at ordinary rates. If you sell, for instance a rental property upon which you have taken depreciation, you will pay capital gains rates on part of the gain and 25% on the rest.

Answer 2

An ordinary gain is taxed the same as wages ("ordinary" income). Examples of ordinary gain, other than wages, is bank interest.

A capital gain is a gain on the sale of an asset, or income produced by an asset (usually, dividends). It usually is taxed at a lower rate than an ordinary gain. Examples of income taxed at capital gains rates are sales of stocks, bonds, mutual funds, real estate. Dividends used to be taxed as ordinary gain, but are most often now taxed as capital gain.

So, it is better for tax purposes to have capital gains rather than ordinary gains.

Answer 3

As the terms are commonly used with references to taxation, the terms mean the same thing.

A capital gain is the gain realized from the sale of an asset held for investment purposes.

If you hold an asset for investment purposes, it's value will (hopefully) increase over time. As the value increases, you have a gain on paper however the gain is not realized (and taxed) until you sell the asset.

You could call the interest that accumulates in a savings account "gain" and be grammatically correct but for tax purposes it's called interest to differentiate it from capital gains since they are treated differently at tax time.

Answer 4

It depends on the type of investment, the length of time of the investment or gain, that determines the tax rate.