How is a capital loss determined?

A capital loss occurs when an asset is sold for a lower price than it was originally purchased. This situation reflects a decrease in value, meaning the seller does not recoup their initial investment and instead incurs a financial loss. For example, if an individual buys stock at $100 and later sells it for $70, they experience a capital loss of $30. This concept is crucial for tax purposes as capital losses can offset capital gains, reducing the overall tax liability that an investor may owe.

The other scenarios do not reflect a capital loss. Selling an asset for a higher price indicates a capital gain, which is the opposite of a loss. Borrowing against an asset does not involve any sale or realization of value, so it cannot determine a capital loss. Similarly, the accrual of interest pertains to the income generated by an asset rather than its sale or value fluctuation, and therefore does not relate to capital loss determination.