What is a Realized Loss?
A realized loss is a decrease in the value of an asset that has been sold. This concept is the opposite of paper loss or unrealized loss -- a paper loss only turns into a realized loss when you actually sell the security.
How Does a Realized Loss Work?
Let's assume you own 100 shares of Company XYZ that you purchased for $1,000. If the value of the investment decreases to $200 and you sell the shares, your realized loss equals $800.
Why Does a Realized Loss Matter?
Changes in tax rates may influence the timing of an investor's decision to realize losses. From a tax perspective, realized losses can often offset realized gains and thus lower a person's potential capital-gains taxes.
