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  • A cap is a ceiling, or the highest level to which something can go.

    For example, an interest rate cap limits the amount by which an interest rate can be increased over a specific period of time. A typical cap on an adjustable rate mortgage (ARM) limits interest rate increases to two percentage points annually and six percentage points over the term of the loan.

    In a different example, the cap on your annual contribution to an individual retirement account (IRA) is $4,000 for 2006 and 2007 and $5,000 in 2008, provided you have earned at least that much. If you're 50 or older, you can make an additional catch-up contribution of $1,000 each year.

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  • To prevent excessively high payment increases, ARM's place a cap on the amount by which the interest rate may rise at any single adjustment, over the life of the loan, or both.

    State of Maine, Department of Professional and Financial Regulation - Cite This Source - This Definition

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  • Capital is money that is used to generate income or make an investment. For example, the money you use to buy shares of a mutual fund is capital that you're investing in the fund.

    Companies raise capital from investors by selling stocks and bonds and use the money to expand, make acquisitions, or otherwise build the business.

    The term capital markets refers to the physical and electronic environments where this capital is raised, either through public offerings or private placements.

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  • The difference between an asset's basis (usually the cost) and sale price. In appropriate cases, a Certificate of Divestiture allows a financial disclosure filer to defer paying taxes on capital gain.

    US Army Financial Disclosure Management - Cite This Source - This Definition
  • When you sell an asset at a higher price than you paid for it, the difference is your capital gain. For example, if you buy 100 shares of stock for $20 a share and sell them for $30 a share, you realize a capital gain of $10 a share, or $1,000 in total.

    If you own the stock for more than a year before selling it, you have a long-term capital gain. If you hold the stock for less than a year, you have a short-term capital gain.

    Most long-term capital gains are taxed at a lower rate than your other income while short-term gains are taxed at your regular rate. There are some exceptions, such as gains on collectibles, which are taxed at 28%. The long-term capital tax rates are 15% for anyone whose marginal federal tax rate is 25% or higher, and 5% for anyone whose marginal rate is 10% or 15%.

    You are exempt from paying capital gains tax on profits of up to $250,000 on the sale of your primary home if you're single and up to $500,000 if you're married and file a joint return, provided you meet the requirements for this exemption.

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Also listed in:

All > Business > Finance > Personal Finance

All > Business > Finance > Personal Finance

All > Business > Finance > Personal Finance

All > Business > Finance > Personal Finance

All > Business > Finance > Personal Finance

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