Don, the owner of Walt Incorporated, has a building that he bought for $3,500,000. It has depreciated by $550,000. Now, Don wants to sell it for $4,500,000. He has heard about ordinary losses and capital losses. Unfortunately, Don does not know the difference between these two types of losses. To add to the confusion, he does not know what the difference is between a realized and a recognized loss.

• How would you explain differences of these types of losses to Don?