Look for adjusted basis, depreciation taken, selling costs, holding period, state tax, and 1031 planning.
Plain-English term
Capital gains
Profit from selling an asset for more than its tax basis.
Definition that survives review
Capital gain is generally the difference between sale proceeds and adjusted basis, subject to tax rules and holding-period treatment. In a real review, translate the term into the cash flow, priority, deadline, tax treatment, status test, or control right it changes.
Use it to estimate taxable gain before celebrating gross sale profit. If you cannot point to the exact document or calculation behind it, you have recognized the vocabulary but not yet understood the deal.
Why it matters
The sale headline is not the after-tax answer. Basis, depreciation, recapture, state tax, and timing all want a word. This is why the term is not finished until you know who calculated it, what period it covers, and what happens if the friendlier definition is wrong.
A useful glossary entry should show where the word appears, what input changes it, and which connected term changes the answer next: 1031 exchange, Depreciation, Cost segregation.
How to use it in diligence
Sale price - selling costs - adjusted basis = potential capital gain
A $2M sale on a $1.3M adjusted basis is not just a $700K victory lap; the tax treatment still has to be modeled.
Confusing gross profit with money you actually keep after taxes and transaction costs.
Proof checklist
- The source period, calculation basis, and owner of the number are named.
- The term reconciles to the PPM, operating agreement, lender documents, tax schedule, underwriting model, or verification record.
- The downside version is visible before the optimistic version gets trusted.
Example, trap, question
A $2M sale on a $1.3M adjusted basis is not just a $700K victory lap; the tax treatment still has to be modeled.
Confusing gross profit with money you actually keep after taxes and transaction costs.
- what the adjusted basis is before anyone tells you the profit number.
- What source document, schedule, or third-party evidence proves this term in this specific deal?
- Which connected term changes the answer next: 1031 exchange, Depreciation, Cost segregation?
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