Hawaii Pre-Licensing National Practice Exam 2025 – Your Complete Prep Guide

Question: 1 / 400

What does the term "capital gain" refer to in real estate?

The total income accumulated from rental properties.

The profit gained from selling an asset at a higher price than the purchase price.

The term "capital gain" specifically refers to the profit that is realized when an asset, such as real estate, is sold for a higher price than what it was purchased for. This concept is central to real estate investment, as it directly impacts an investor's return on their investment.

When a property is sold, the difference between the sale price and the original purchase price is calculated to determine the capital gain. If you bought a property for $300,000 and sold it for $400,000, your capital gain would be $100,000. Understanding capital gains is crucial for investors, as it not only affects their financial outcomes but also has implications for tax considerations based on the profit earned.

The other options refer to different aspects of real estate investment, such as rental income and taxes, but they do not encapsulate the essence of the term "capital gain" as it is understood in financial terms.

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A tax imposed on the sale of real estate.

The initial investment required to acquire a property.

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