A capital loss occurs when an investment, such as stocks or real estate, is sold for less than its purchase price. This loss can happen due to market fluctuations or changes in the value of the asset. For example, if you bought shares of a company for $1,000 and later sold them for $700, you would have a capital loss of $300. Capital losses can be used to offset capital gains, which are profits from selling investments at a higher price. In some cases, individuals can also deduct capital losses from their ordinary income, subject to certain limits set by tax regulations.