Capital loss

The result of selling an asset for less than it cost. In many systems a realised loss can be set against a realised gain to reduce the tax due.

Example

A 12,000 gain and an 8,000 loss realised in the same year may leave only 4,000 taxable, where the rules allow it.

Important

A loss on paper generally does nothing. Whether realising it helps, and under what conditions, is entirely a question of local rules - several of which disallow the benefit if a near-identical asset is bought back too soon.

Related terms

• Capital gain — The profit made by selling an asset for more than it cost, as distinct from the income the asset paid you while you held it.
• Tax loss harvesting — Deliberately realising a loss so it can be set against a gain, reducing the tax owed in that year.
• Taxable event — The moment a tax system treats something as having happened - most commonly a sale, rather than an increase in value while you still hold the asset.

Lessons that explain it

• A loss here does not wait for a rebound, because there usually is not one — Most positions fail outright and stay failed - there is no price to watch and no recovery to wait for. What survives is a genuine tax provision that can exclude the entire gain on a winner, and an equally genuine cost most investors never total: their own uncompensated diligence time. (13 min)
• Turnover, the taxable event, and the cost of selling — In most systems a gain is taxed when it is realised, not when it happens. That single rule means how often you trade changes your return even when every trade is correct. (11 min)

All 578 terms in the Investing glossary