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What Is a Capital loss? Definition, Uses and Importance.

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The loss that results from the sale of a capital asset, such as real estate, jewelry, or stocks and bonds. When a loss is incurred it counts against other gains and there are fewer tax consequences. Many people are unaware that a capital loss is a difference between what you paid and how much your asset was bought for. This means if you sell an investment at $0, but it cost $1 to buy then there will be no gain or loss on this transaction since both assets had the same value when they were purchased.

The IRS has measures in place against investors who try to take advantage of tax benefits by buying stocks with high potential losses just before making another purchase which could cancel out these wash-sale losses; however, as long as any amount from one sale goes towards purchasing new stock within 30 days after selling off old stock it does not count toward being considered a “wash.”

Capital loss is different than losing your keys.

A capital loss refers to the markdown of an owned asset that was once more valuable. This is a measure usually taken for tax purposes.

Reporting a capital loss

Capital gains and capital losses are reported on Form 8949.

Importance of capital losses

If you have made money in the past, through horseracing, real estate or stocks, a capital loss can lessen your tax burden.

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