What is an unrealized loss?

Sometimes it was referred to as a loss of paper, an unrealized loss is a situation where the investor has suffered a loss on stocks or other security, but has not yet officially accepted a loss. This unrealized loss may be a temporary situation provided that the safety value begins to increase again and exceeds the price originally paid for the stock. If the investor decided to sell security, while the price is still under this original purchase price, the unrealized loss is realized and can be claimed as a capital loss.

The easiest way to understand the nature of unrealized losses is to consider the purchase of a thousand shares of the shares. A few weeks after this purchase, the value of these shares will begin to decline because of some unexpected event or shift on the market. Within one or two days, the value of these shares is half of what the investor initially paid. This means that the shareholder has experienced fifty percent of the Uneaztrate of the loss of investment.

Depending on the circumstances surrounding the trend, the investor may reflect that the shares will soon be equal and will start to increase again. If this is the case, it may decide to maintain shares and finally reduce the amount of unrealized losses, because the value of the shares increases to a level that is more than the original purchase price. This would create a so -called unrealized profit.

If the shares are not recovered and instead continues the descending trend, the investor will experience an increase in unrealized losses. Once it is clear that the shares will not recover, the investor would do well to sell shares before the value further decreases, thus preventing further increased loss. After the sale of shares, the unrealized loss becomes a realized loss and can be claimed as a tax deduction during the period when the loss is realized.

both unrealized loss and unrealized profit remain in this state until the investor decides to sell security. At this point, the profit n is realizedEBO loss and value of the investment portfolio is adequately modified. This is important because many tax agencies do not consider capital profits to be taxable until these profits are realized. Moreover, the loss usually cannot be claimed as a deduction until the amount is realized.