What does a capital loss represent?

A capital loss represents the difference between the purchase price of an asset and the lower sale price when it is sold. When an asset, such as stocks, real estate, or other investments, is sold for less than what it was originally bought for, the result is a capital loss.

This concept is crucial for taxpayers, as capital losses can offset capital gains, which are profits earned from selling assets at a higher price than their purchase price. This offset reduces the overall taxable income that a taxpayer may owe in capital gains taxes, making it an important factor in tax planning and strategy.

The other options relate to different aspects of financial transactions. Gains from the sale of property pertain to capital gains, which are the opposite of capital losses. The reduction in taxable income is a broader term that may involve various deductions and credits, not just capital losses. Tax deductions for mortgage interest relate specifically to interest paid on home loans and do not encompass the concept of capital losses.