Capital Loss
BeginnerA capital loss is the loss made when an asset, such as a share, bond or property, is sold for less than its purchase price.
A capital loss is the opposite of a capital gain. It is calculated as the sale price minus the original purchase price and any allowable costs, when that figure is negative.
For example, an investor who buys shares for 5,000 and later sells them for 4,200 has a capital loss of 800.
Like gains, losses are only realized when the asset is sold. Before then, a fall in value is an unrealized or paper loss, which may recover if the price rises again.
Capital losses can have tax benefits. In many countries, realized capital losses can be used to reduce taxable capital gains in the same year. If losses exceed gains, some systems allow the unused losses to be carried forward to future years, and a few allow a limited amount to be offset against other income. Some investors deliberately sell investments at a loss to use these rules, a strategy called tax-loss harvesting, although many tax systems have rules to stop people selling and immediately rebuying the same investment just to claim a loss.
Rules on capital losses vary widely by country.
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