Capital Loss
What Is Capital Loss?
A capital loss occurs when an investment or asset is sold for less than its original purchase price.
Capital losses are the opposite of capital gains and represent a financial loss on an investment.
Why It Matters
Capital losses can reduce the tax impact of capital gains and may help lower overall tax liability.
Investors often consider capital losses when managing portfolio performance and tax planning.
How Capital Loss Works
A capital loss is calculated by subtracting the selling price of an asset from its purchase price.
If the result is negative, the difference represents a capital loss.
Capital losses may sometimes offset capital gains when calculating taxable income.
Example
If an investor purchases shares of stock for $4,000 and later sells them for $3,000, the $1,000 difference represents a capital loss.
Capital Loss vs Capital Gain
- A capital loss occurs when an asset sells for less than its purchase price.
- A capital gain occurs when an asset sells for more than its purchase price.
FAQs About Capital Loss
Can capital losses reduce taxes?
Yes. Losses may offset certain capital gains.
Do capital losses apply only to investments?
They generally apply to investment assets such as stocks or real estate.
Do capital losses need to be reported?
Yes. Losses are reported on tax returns to determine tax impact.
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