Capital Loss

"Capital loss" is a financial term that refers to the depreciation or decrease in value of a capital asset under the purchase price of said asset. Conversely, when such an asset increases in value from the purchase price it is said to have incurred a capital gain or profit.

Capital losses can be realized on real assets (such as real estate property) and on financial assets (such as stocks and bonds.) According to the United States Tax Code (see section 1222) personal-use capital assets, for instance a personal vehicle such as a car or truck, if sold for less than the purchase price cannot be declared as a deductible capital loss. (Capital gains, on the other hand, are taxable.)

In the United States, a taxpayer can use capital losses incurred in a given year to offset the capital gains accrued and thus reduce the degree of taxable income reported. In instances when losses incurred are higher than realized gain, a maximum amount of $3,000 may be deducted.

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