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 Company A for $100 and later sold them for $70, you would incur a capital loss of $30. Capital losses can be used to offset capital gains, which are profits from selling investments at a higher price. If your total capital losses exceed your capital gains in a given year, you may be able to deduct the loss from your taxable income, potentially reducing your overall tax liability.