How is capital gains tax applied to real estate transactions?

Capital gains tax is specifically applied to the profit earned from the sale of a property, which is calculated as the difference between the selling price and the purchase price (adjusted for any improvements or allowable expenses). This means that the tax is levied only on the actual gain realized from the transaction, rather than the total sale price of the property.

This method ensures that sellers are taxed on the increase in value of their investment rather than the entire amount received upon sale. It includes various types of real estate, not limited to residential properties, thereby encompassing commercial and investment properties as well. By only taxing the realized profit, the tax structure aims to be fairer to property owners who may not have significant gains despite selling at a higher price.