What is an Unrealized loss?
An unrealized loss is the difference between the current market value of an investment and its original purchase price (cost basis) when the current value is lower. The loss remains unrealized - and has no tax impact - until the investor sells the asset. Once sold, the loss becomes realized and can offset capital gains or up to $3,000 of ordinary income per year. Tax loss harvesting converts unrealized losses into realized losses strategically, capturing tax benefits while maintaining overall portfolio exposure through replacement investments.
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