An unrealized loss is the loss that occurs when the current market price of an asset is lower than its original purchase price, but the asset has yet to be sold. These kinds of losses may be referred to as “paper losses” because they have not yet been realized by the sale of the asset. For example, an investor who purchased stocks at $20 per share, but who finds that the stock is now trading for $10 per share would be facing an unrealized loss of $10 per share.

Unrealized losses can occur in any asset market, whether stocks, bonds, commodities, or any other asset. In each case, the loss is sustained when the investor holds the asset, but is not realized until the asset is sold. Additionally, the value of the asset may change over time—the unrealized loss may be higher or lower than the loss sustained when the asset was originally purchased.

Unrealized losses can have an effect on a firm's accounting and tax records. From an accounting standpoint, unrealized losses must be reported on the firm's balance sheet. For tax purposes, unrealized losses are not recognized until they are recognized losses—at which time they are treated as capital losses.

Unrealized losses can have a significant impact on an investor's financial situation, whether they are accounting for taxes or maintaining an accurate portfolio. On the other hand, they can also be beneficial to an investor because they can provide tax incentives or create an opportunity to buy an asset at a lower price.

For investors, it is important to consider the effect of unrealized losses when managing their portfolios. Closely monitoring the value of investments and accounting for unrealized losses can help investors limit risk and maximize returns. Additionally, investors should remember to consider the taxes associated with realized losses when deciding whether to sell off an asset.