What is a capital gain?

A capital gain refers specifically to the profit earned from the sale of a capital asset, such as stocks, real estate, or other investments. When you sell a capital asset for a higher price than you initially paid for it, the difference between the selling price and the original purchase price is termed a capital gain. This gain is important for taxation purposes, as it may be subject to capital gains tax. Understanding this concept is crucial for investors and individuals involved in asset trading since it directly impacts financial planning and tax obligations.

The other choices relate to different financial concepts. Costs added to the basis of an asset refer to improvements or additional expenses that increase the asset's value, which isn't a gain but rather an adjustment to the asset's original cost. The loss incurred when selling a capital asset describes a capital loss rather than a gain, which occurs when you sell an asset for less than what you paid for it. Lastly, the cancellation of debt amount has its own implications for tax liability and does not relate to capital gains or selling assets. Thus, the correct understanding of a capital gain is encapsulated in the option about the profit from selling a capital asset.