Unrealized holding loss definition

An unrealized holding loss is a decline in the value of an asset, where the loss has not yet been recognized. The loss would be realized once the asset is sold or disposed of in some other way. The owner of such an asset might elect to continue owning it, hoping that its value will eventually increase, thereby erasing the unrealized loss.

Only a realized holding loss can be used to offset a taxable gain for the purpose of reducing one's income tax liability.

Example of an Unrealized Holding Loss

Orange Corporation owns a security that cost $10,000, but which now has a market value of $8,000. Orange therefore has an unrealized holding loss of $2,000. A month later, the market value of the security has risen to $9,000, so Orange now has an unrealized holding loss of $1,000. Orange then sells the security for $9,000. At this point, it has a realized loss of $1,000. It no longer has an unrealized holding loss.