What is the realized loss?

The loss is a loss that is only recognized when the asset has been sold that reduced the value, and the selling price was lower than the original purchase price. Until the assets are actually sold, the loss exists only on paper and is referred to as the loss of paper. Usually it is not possible to report a loss of paper on the tax return and obtain some type of tax relief. Only in the case of the implementation of the loss can it be used to settle the amount of taxes owed for the period.

One way to understand how the function of the realized loss is to consider buying a round number of shares. If this round batch included a hundred shares of $ 10 shares in USD (USD), the initial investor's investment will reach $ 1,000. If the shares have not preserved their value and dropped to the price of $ 8 per share, investors maintain a paper loss of $ 200.

For the purpose of the realized loss, the investor would have to sell thisA hundred shares for the current market price of $ 8 per share. This would allow the investor to recover 80% of the initial investment, while maintaining a $ 200 loss. The fact that the capital loss of $ 200 may then be required to be a loss of a tax return covering the period when the shares were actually sold. Assuming that the investor has other assets that published capital gains in the same period, this loss may be used to reduce taxes owed from these profits.

It is important to realize that the realized loss occurs only when the assets that have suffered a loss are sold. This means that it is possible to maintain the loss of paper in one accounting period, but do not realize the loss until the assets are sold with a loss in the following accounting period. For example, if the price for a given security decreases in one tax year, but this security is not actually sold with a loss until the next tax year, he was aware that the loss could only be required in the typeyear, and not in the year when the market value has decreased.

Investors sometimes delay the sale of worthless securities until this sales significantly help to compensate for capital profits obtained for other investments. This means that the investor can allow the loss of paper after several accounting periods before taking steps to sell shares for everything that is considered to be the current market value. This not only helps to reduce the impact of loss on the overall investment portfolio, but also helps reduce the tax burden on a period when the real or realized loss is suffered, and to allow the investor to maintain more profits from those investments that were sold for profit.