What does the term "net capital gain" refer to?

Net capital gain refers to the overall profit derived from the sale of capital assets after accounting for any capital losses. This calculation ensures that any losses incurred from selling other investments can offset the gains realized, leading to a more accurate reflection of an individual's taxable income. For instance, if an investor sells stocks and realizes gains, but also has some losses from other investments, the net capital gain takes these losses into consideration to determine the actual profit for tax purposes.

Understanding net capital gain is essential for tax reporting, as it directly impacts the amount of tax an individual owes. Capital gains and losses are categorized into short-term and long-term based on how long the assets were held, which can also influence the tax rate applied to the net gain. In this case, the correct choice emphasizes the importance of netting gains against losses to arrive at the true profit for tax liability assessment.