Realized vs. Unrealized Investment Loss: What’s the Difference?

As an investor, you should know that every executed trade and transaction is not without risk. Many investors rely on the advice of their stockbrokers and financial planners to achieve their financial goals. Unfortunately, not all brokers uphold their fiduciary duty to prioritize their client’s needs. When this happens, considerable investment losses can occur.

Fortunately, if your losses were caused by stockbroker negligence or misconduct, you may be able to recover such losses in arbitration with the Financial Industry Regulatory Authority (FINRA).

One of the common situations in which an investor can be taken advantage of is when realized or unrealized investment losses occur. Continue reading to learn more about these types of losses and why your broker could be responsible.

A Closer Look at Realized Investment Losses

When an investor purchases a capital asset, such as a home, investment property, car, collectibles, or art, the value of the asset does not increase or decrease as long as the investor retains ownership of the asset.

Once the asset has been sold, the investor can then declare a profit or loss based on how much they purchased the asset for and then how much it sold for.

An investor would suffer a realized loss if they sold their capital asset for less than what they paid for it. For example, if an investor purchased an investment property for $2.5 million and then sold it for only $2 million, they would have realized investment losses amounting to approximately $500,000.

The good thing about realized losses is that they often have positive tax implications, especially when realized losses are greater than realized gains.

What Are Unrealized Investment Losses?

Unrealized investment losses occur when an investor retains ownership of a capital asset that has decreased in value. If the investor sells the asset, it becomes a realized loss. But as long as the investor maintains possession of the asset, it remains unrealized.

There are many reasons why an investor might hold on to an unrealized loss. But in many cases it is in the hope that the value of the asset will recover in time.

Financial advisors may recommend that investors sell their unrealized losses when it seems unlikely that the asset will increase in value. In selling the unrealized loss, the investor may be able to recover some of their initial investment and allow their capital gains to offset the (now) realized loss.

Contact a Qualified Attorney About Your Investment Loss

If your broker encouraged you to sell an unrealized loss that subsequently increased in value, you may have grounds for a FINRA arbitration complaint. Reach out to a respected lawyer at Wolper Law Firm, P.A. to discuss the details of your case. We can be reached by phone at 800.931.8452 or through the online contact form included at the bottom of this page.

Attorney Matthew Wolper

Attorney Matthew WolperMatt Wolper is a trial lawyer who focuses exclusively on securities litigation and arbitration. Mr. Wolper has handled hundreds of securities matters nationwide before the Financial Industry Regulatory Authority (FINRA), American Arbitration Association (“AAA”), JAMS, and in state and federal court. Mr. Wolper has handled and tried cases involving complex financial products and strategies ranging from traditional stocks and bonds to options, margin and other securities-based lending products, closed/open-end mutual funds, structured products, hedge funds, and penny stocks. [Attorney Bio]