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Simple English definitions for legal terms
long-term capital loss
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A quick definition of long-term capital loss:
A long-term capital loss is when you lose money by selling something you've owned for a long time, like a house or stocks. It's not a good thing because you're losing money, but it's different from losing something in a disaster or accident. The government has rules about how you can use long-term capital losses to reduce your taxes.
A more thorough explanation:
A long-term capital loss is when you sell or exchange a capital asset for less than what you paid for it after holding it for an extended period, usually at least 12 months. This loss can be used to offset capital gains and reduce your tax liability.
- If you bought a stock for $1,000 and sold it for $800 after holding it for 18 months, you would have a long-term capital loss of $200.
- If you sold a rental property for $200,000 but its adjusted value was $250,000, you would have a long-term capital loss of $50,000.
These examples illustrate how a long-term capital loss occurs when you sell a capital asset for less than its original cost after holding it for an extended period. This loss can be used to offset capital gains and reduce your tax liability.