Unrealized Loss

AAA

DEFINITION of 'Unrealized Loss'

A loss that results from holding onto an asset after it has decreased in price, rather than selling it and realizing the loss. An investor may prefer to let a loss go unrealized in the hope that the asset will eventually recover in price, thereby at least breaking even or posting a marginal profit. For tax purposes, a loss needs to be realized before it can be used to offset capital gains.

INVESTOPEDIA EXPLAINS 'Unrealized Loss'

For example, assume an investor purchased 1,000 shares of Widget Co. at $10, and it subsequently traded down to a low of $6. The investor would have an unrealized loss of $4,000 at this point. If the stock subsequently rallies to $8, at which point the investor sells it, the realized loss would be $2,000. For tax purposes, the unrealized loss of $4,000 is of little significance, since it is merely a "paper" or theoretical loss; what matters is the realized loss of $2,000.

RELATED TERMS
  1. Capital Loss

    The loss incurred when a capital asset (investment or real estate) ...
  2. Unrealized Gain

    A profit that exists on paper, resulting from any type of investment. ...
  3. Capital Gain

    1. An increase in the value of a capital asset (investment or ...
  4. Realized Loss

    A loss is recognized when assets are sold for a price lower than ...
  5. Tax Gain/Loss Harvesting

    Selling securities at a loss to offset a capital gains tax liability. ...
  6. Endowment Effect

    The endowment effect describes a circumstance in which an individual ...
RELATED FAQS
  1. What are unrealized gains and losses?

    An unrealized loss occurs when a stock decreases after an investor buys it, but he or she has yet to sell it. If a large ...
Related Articles
  1. Options & Futures

    What To Do When Your Options Trade Goes Awry

    Check out some repair strategies to help boost the profit potential of a losing position.
  2. Active Trading Fundamentals

    The Stop-Loss Order - Make Sure You Use It

    It's a simple but powerful tool to help you implement your stock-investment strategy. Find out how.
  3. Professionals

    'Tis The Season For Tax-Loss Harvesting

    With the end of the year upon investors are looking for ways to reduce their tax bill. One tactic that is often used is tax-loss harvesting.
  4. Investing

    Understanding Capital Gains

    Capital gain refers to the increase in value of a capital asset or an investment security upon sale. In other words, if you buy company stock, real estate or fine art and then sell it for more ...
  5. Economics

    How A Limited Government Affects A Country's Finances

    Countries with limited governments have fewer laws about what individuals and businesses can and can’t do. What's the net result?
  6. Investing Basics

    How Does Goodwill Affect Financial Statements?

    Goodwill is a bit of a paradox--intangible, yet it is recorded as an asset on the purchasing company's balance sheet.
  7. Investing Basics

    Using Normal Distribution Formula To Optimize Your Portfolio

    Normal or bell curve distribution can be used in portfolio theory to help portfolio managers maximize return and minimize risk.
  8. Investing Basics

    R-Squared

    Learn more about this statistical measurement used to represent movement between a security and its benchmark.
  9. Insurance

    The Government And Risk: A Love-Hate Relationship

    Though the U.S. government can help its citizens by subsidizing risky loans, the costs always come back to the taxpayers.
  10. Fundamental Analysis

    Can Good News Be A Signal To Sell?

    Sometimes positive announcements can mean bad news for a stock. Find out why.

You May Also Like

Hot Definitions
  1. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  2. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  3. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
  4. Law Of Supply

    A microeconomic law stating that, all other factors being equal, as the price of a good or service increases, the quantity ...
  5. Investment Grade

    A rating that indicates that a municipal or corporate bond has a relatively low risk of default. Bond rating firms, such ...
  6. Fringe Benefits

    A collection of various benefits provided by an employer, which are exempt from taxation as long as certain conditions are ...
Trading Center