A capital loss is the loss that can result when a capital asset is sold or exchanged for less than its tax basis.
A capital loss is the loss that can result when a capital asset is sold or exchanged for less than its tax basis. In plain language, it is the downside counterpart to a Capital Gain: the transaction produces a tax loss rather than taxable profit.
Capital loss matters because taxpayers often think only about gains when they hear “capital gains tax.” But the tax treatment of asset sales also has a loss side, and understanding that side is important for accurate Schedule D reporting.
It also matters because a sale’s cash outcome alone does not tell the tax story. The comparison with Cost Basis still controls whether there is a gain or loss.
Capital loss appears when a taxpayer reports the sale of a capital asset on the annual Tax Return. The taxpayer compares the amount realized with basis and reports the resulting loss through Schedule D.
A taxpayer sells an investment asset for less than the asset’s tax basis. The difference creates a capital loss, which then becomes part of the return’s asset-sale reporting.
Capital loss is not the same as an ordinary business expense. It belongs to the asset-sale context, not the current business-expense context.
It is also different from a Wash Sale Rule issue, which focuses on when a loss may not be recognized the usual way.