Capital gains are the profits an investor makes when selling a capital asset. A capital asset can take the form of investments such as stocks, bonds and other similar investments or real estate. A capital gain occurs only when the purchaser of the asset sells it for a profit. For an example, say an investor bought 100 shares of a stock for $1000. The value of the stocks rises to $1100 dollars after one year, and he decides to sell them. The investor's capital gain on the purchase would be $100. If the investor held onto the stock and never sold it, no capital gain would ever occur. The time period the investor holds the investment can be long term or short term, but any capital gains must be claimed on the investor's income taxes. A capital loss occurs when an investor loses money on his investment.