Realized Loss
Candlefocus EditorRealized losses are different from unrealized losses. Unrealized losses are potential losses due to changes in an asset's market value, but these losses have not yet occurred as the asset has not yet been sold. As such, unrealized losses are paper losses and not reported as an income item in accounting.
Realized losses are reported as a negative item on an income statement and require a taxpayer to make an entry on their tax return. The taxpayer can then use the realized loss to offset capital gains recorded for the reporting period. In other words, a realized loss can be used to reduce total capital gain for the period, thereby reducing the individual's or business’ overall income tax liability for that period. This may be done by writing off the loss against other investments or resources which may have profited from the realized loss.
Realized losses can occur as a result of a variety of situations. For example, if a stock is purchased and then quickly sold at a lower price than the purchase price, a realized loss can be recognized. In addition, a realized loss can be caused by the declining value of an asset, such as a bond or mutual fund, over time or a change in market conditions.
In the case of real estate, a realized loss is possible when a property is sold at a lower price than the original purchase price. Realized losses due to real estate transactions can be used as tax write-offs in a similar way to other investments.
In conclusion, a realized loss is a loss that has actually occurred due to the sale of an asset. Realized losses are available as a tax write-off for both individuals and businesses, providing a tax benefit to those who have an offsetting capital gain. Realized losses differ from unrealized losses, which are paper losses only and do not involve the sale of any asset.