What are capital losses?

Capital losses represent the financial losses that an investor experiences when selling an asset for less than the original purchase price. This typically occurs when the market value of the asset declines, resulting in an amount received that is lower than what was initially paid. Understanding capital losses is essential for tax purposes, as they can offset capital gains and potentially reduce overall tax liability.

Additionally, capital losses are often important in formulating investment strategies and financial planning, as they provide insight into performance and the impact of market fluctuations on an individual’s portfolio. Recognizing and accurately reporting capital losses can also offer benefits such as tax deductions, which can help in managing taxable income.