when an investor buys a capital asset an increase or decrease in the value of the security does not translate to a profit or loss the investor can only make a claim to a profit or loss after he has sold the security at fair market value in an arm s length transaction 1 
real world example of realized loss for investorsfor example assume an investor purchases 50 shares of exwhyzee xyz at 249 50 per share on march 20 from this purchase date to april 9 the value of the stock declined by about 13 7 to 215 41 however the investor only has a realized loss if he actually sells at the depressed price otherwise the decline in value is simply an unrealized loss which only exists on paper realized losses unlike unrealized losses can affect the amount of taxes owed a realized capital loss can be used to offset capital gains for tax purposes from our example above the investor after selling his xyz stocks realized a loss of 50 x 249 50 215 41 1 704 50 suppose he realized a profit on aybeecee abc which he purchased for 201 07 and sold for 336 06 during the same tax year if he purchased and sold 50 abc shares his capital gain on the transaction will be recognized as 50 x 336 06 201 07 6 749 50 applying the realized loss to this gain means that the investor will only owe taxes on 6 749 50 1 704 50 5 045 rather than the entire capital gains amount in addition if the realized losses for a given tax year exceed the realized gains up to 3 000 of the remaining losses can be deducted from the taxpayer s taxable income also if net losses exceed the given 3 000 limit the remainder can be carried forward to future years 2 this practice is called tax loss harvesting and discount brokers have added features to their desktop and mobile apps in recent years to help investors with this process 