Capital loss

From Academic Kids

In finance, a capital loss is a financial loss incurred when an asset is sold for less than its original purchase price. Capital losses are most often incurred in stock and bond investments.

In taxation in the United States, capital gains are subject to capital gains tax, but if a taxpayer has suffered from capital losses in the same year, he can offset the gains with the losses to reduce his tax. If the losses exceed the gains for an individual, he can take up to a $3,000 tax deduction to correspond with the losses.

Normal depreciation of the value of an asset is not considered a capital loss, so if a taxpayer purchases a car for $30,000 and sells it a year later for $15,000 and this is a reasonable price for a year-old used car of that type, no tax deduction may be taken.

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