What is a capital gains tax in relation to real estate?

A capital gains tax in relation to real estate specifically refers to the tax imposed on the profit realized from the sale of a property. When an individual sells a piece of real estate for more than what they originally purchased it for, the difference between the selling price and the purchase price (minus any allowable deductions or costs associated with the sale) is considered a capital gain. This gain is taxable, which is why it is called a capital gains tax.

Understanding this concept is crucial for property owners and investors, as it affects their net profit from real estate transactions and has implications for investment strategy and tax planning. The other options do not accurately define capital gains tax; for instance, taxes deducted from rental income pertain to operational income rather than profit from sales, while fees for transferring property ownership relate to transaction costs rather than profits, and taxing the total sale price does not consider the crucial factor of the profit made from the transaction.