A capital loss is a financial loss incurred when an individual or entity sells an investment, asset, or property for a price lower than the original purchase price or adjusted basis. This loss is the difference between the selling price (proceeds) and the initial cost of the investment. Capital losses can occur in various types of investments, including stocks, real estate, bonds, and other assets.
Capital losses have tax implications and can be used to offset capital gains for tax purposes. In some tax systems, individuals or businesses can deduct capital losses from their taxable income, thereby reducing their overall tax liability. The specific rules and limitations regarding the deductibility of capital losses vary by jurisdiction and can be subject to certain conditions, such as the holding period of the investment.
Capital losses can result from a variety of factors, including market fluctuations, changes in asset value, or specific circumstances surrounding the sale of the investment. Investors often strategically manage their capital gains and losses to optimize their tax outcomes and overall financial portfolios.