So what is an unrealized loss?

FAQ: What is an unrealized loss?

Answer: An unrealized loss is a loss that is the result of holding onto an asset after it has decreased in price, rather than selling it and realizing the loss. As an investor you may prefer to let a loss go unrealized in the hope that the asset will eventually recover in price, thereby at least breaking even or posting a marginal profit. For tax purposes, a loss needs to be realized before it can be used to offset capital gains.

For example, if you assume you as the investor purchased 1,000 shares of ABC Co. at $10 per share, and it then later it traded down to a low of $6 per share. You would have an unrealized loss of $4,000 at this point. Then for example, if the stock subsequently goes back up to $8, at which point you sell all your shares, the realized loss would be $2,000. For tax purposes, the unrealized loss of $4,000 doesn’t have any insignificance, since it is just a theoretical loss. However, your realized loss of $2,000 would have an impact on your taxes.