What does 'capital gains tax' refer to in real estate?

Capital gains tax in real estate specifically refers to the tax levied on the profit made from the sale of a property. This profit is calculated by subtracting the purchase price from the selling price of the property. If the property was sold for more than it was initially bought, the difference—known as the capital gain—is what incurs the tax. This taxation is significant because it encourages investors to understand their gains and losses, and how long they have held the property, which can affect the rate of tax applied.

The other options do not accurately describe capital gains tax. For instance, a tax on the total sales price does not reflect profit but rather the entire sales transaction. Fees charged by real estate agents pertain to transaction costs and are not related to profit generation. Lastly, a tax assessed on the value of the property at the time of purchase is not connected to gains but rather to the property's initial valuation and could refer to property taxes rather than capital gains taxation.