Intuit Academy Tax Practice Exam 2025 - Free Tax Practice Questions and Study Guide

Capital gains refer specifically to the profits that an individual or entity realizes when they sell an asset for more than its original purchase price. This typically applies to assets such as stocks, real estate, and other investments that have appreciated in value over time. When the sale price exceeds the purchase price, the difference is classified as a capital gain, which is important for tax purposes, as it can impact an individual’s taxable income.

Understanding capital gains is crucial in the context of investment strategies and tax planning, as different types of capital gains (short-term versus long-term) can be taxed at different rates. Long-term capital gains, for instance, which apply to assets held for over a year, usually benefit from lower tax rates compared to short-term gains.

The other options highlight different financial concepts that do not align with the definition of capital gains. Losses from investments would indicate a capital loss, taxable income from wages pertains to earned income, and interest earned on savings accounts relates to income generated from savings rather than capital investments. Thus, the focus on profits from the sale of appreciated assets accurately captures the essence of capital gains.