What does an individual experience when selling an asset for less than its original purchase price?

When an individual sells an asset for less than its original purchase price, they experience a capital loss. This term refers specifically to the financial loss that occurs when the selling price of an asset is lower than the amount paid for it. In the context of taxation, understanding capital losses is important because they can potentially offset capital gains from other investments, thus reducing the overall tax liability.

By recognizing a capital loss, an individual can take steps for tax deductions against future capital gains or regular income, depending on the tax regulations in place. This concept is crucial in investment strategy and financial planning, as it affects how an investor approaches their overall portfolio management. Understanding capital losses provides valuable insights into the performance of investments and can guide future decision-making when trading assets.