In investment, the term capital loss is used to denote a loss made through an investment by an investor. Capital losses occur when assets purchased as an investment lose value within a given time frame (a tax year or contract term, for example) or between the point at which they are purchased and the point at which they are sold.
Capital losses are not fully realized until the investment positions is closed with the assets being sold at a loss. A capital loss is the opposite of a capital gain.
Example of a capital loss:
You buy a house for 600,000 Swiss francs. Some years later, freezing caused by an exceptionally harsh winter and subsequent thawing causes the foundation of the house to crack. The damage is estimated at 50,000 Swiss francs, and brings the value of the property down to 550,000 francs. Your personal wealth incurs a capital loss of 50,000 francs.
However, the loss is not realized until you sell the house for the lower price. If you hold the property and real estate prices increase, it is possible that you may be able to sell the property for 650,000 francs after repairs, recovering your initial investment and the additional 50,000 francs spent on repairs. If the value of the property rose to 700,000 francs, you would benefit from a 50,000-franc capital gain on your investment.
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