Capital Loss

Capital loss is a key concept in both cryptocurrency and accounting. It refers to the loss incurred when selling an asset at a price lower than its original purchase price. This loss is realized only when the asset is sold or disposed of, and until then, it remains a potential loss on paper.

Understanding Capital Loss:

When you purchase an asset, such as cryptocurrency, stocks, real estate, or any other investment, you acquire it at a specific price, known as the "cost basis" or "purchase price." If the value of the asset decreases over time, and you sell it at a price lower than the cost basis, the difference between the selling price and the original purchase price represents the capital loss.

Similar to capital gains, capital losses can also be either short-term or long-term, depending on the holding period of the asset:

Short-term Capital Loss:

If you sell the asset within a year of purchase, any loss incurred is considered a short-term capital loss. Short-term capital losses can be used to offset short-term capital gains for tax purposes.

Long-term Capital Loss:

If you hold the asset for more than a year before selling it at a loss, the loss qualifies as a long-term capital loss. Long-term capital losses can be used to offset long-term capital gains, potentially reducing the overall tax liability.