Which type of income is defined by sudden gains, such as those from the sale of real estate?

The definition of capital gains pertains to the profit realized from the sale of a capital asset, such as real estate, when the selling price exceeds the purchase price. This type of income is considered a sudden gain because it typically occurs at a single point in time—when the property is sold—rather than being generated through ongoing activities or services.

When real estate is sold for more than its original purchase price, the difference represents capital gains, and these gains can significantly impact an individual's or entity's financial standing. Capital gains can be categorized into short-term or long-term, based on the duration the asset was held. This classification is particularly relevant for tax purposes, as it can affect the tax rate applied to the gains.

In contrast, other types of income, such as portfolio income, active income, and passive income, involve different mechanisms of earning money. Portfolio income generally comes from investments like stocks or bonds, active income involves earnings from work or services provided, and passive income usually refers to earnings from rental properties or businesses where the individual is not actively involved in day-to-day operations. Each of these forms of income operates under distinct principles that do not align with the nature of capital gains, which hinge specifically on the sale of capital assets.