We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Finance

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What are Capital Losses?

Malcolm Tatum
By
Updated: May 17, 2024
Views: 2,991
Share

Capital losses have to do with the realization of a loss on some type of capital investment. Essentially, capital losses takes place when the current selling price for the investment drops below the price originally paid by the investor. This would mean if the investor were to sell the investment, he or she would not be able to recoup the resources invested in the initial purchase.

Investors considering the purchase of stocks, bonds, and other securities often look at the past performance of the investment before making a commitment. As part of that evaluation, potential investors attempt to identify any periods over the last year to five years when the security posted a capital loss. Understanding when those periods occurred, along with the factors leading up to those periods where capital losses took place, can make it possible to determine if any current indicators point to the potential for another period of loss. If so, the investor may choose to delay the purchase or turn his or her attention to investing in other options.

Even with the most careful investigations, it is possible for investments of all types to incur capital losses. The loss may only be a temporary downward trend and the expectation is that the investment will soon recover and begin to increase in value once more. When this happens, the investor has to make a decision of whether to hold on to the security and ride out the low period, or sell the security at a loss before the price drops any further.

Along with incurring capital losses in connection with stocks and similar investments, it is also possible to experience a loss related to real estate holdings. As an example, a home is purchased for $300,000.00 US Dollars (USD) and has a current market value that is slightly higher. However changes in the interest rates coupled with some type of natural disaster causes the property to drop in value to $250,000.00 USD within that first year of ownership. As a result, the owner incurs a capital loss of $50,000.00 USD for that annual period.

Fortunately, many countries allow some sort of tax allowances in connection with capital losses. The total amount of the loss or at least a portion of the loss can often be claimed on tax returns covering the annual period. This type of deduction on taxes can help to offset capital gains earned during the period and thus decrease the overall tax burden. In some countries where it is not possible to claim the entire capital loss in one tax period, there are provisions that allow a percentage of the loss to be used as a deduction in later years.

Share
WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including WiseGeek, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.

Editors' Picks

Discussion Comments
Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
Learn more
Share
https://www.wisegeek.net/what-are-capital-losses.htm
Copy this link
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.