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Realized Loss

What is 'Realized Loss'

A loss is recognized when assets are sold for a price lower than the original purchase price. Realized loss occurs when an asset which was purchased at a level referred to as cost or book value is then disbursed for a value below its book value. Although the asset may have been held on the balance sheet at a fair value level below cost, the loss only becomes realized once the asset is off the books.

Explaining 'Realized Loss'

One upside to a realized loss is the possible tax advantage. In most instances a portion of the realized loss may be applied against a capital gain or realized profit to reduce taxes. This may be quite desirable for a company looking to limit its tax burden, and firms may actually go out of their way to realize losses in periods where their tax bill is expected to be higher than wished.


Further Reading




Q&A About Realized Loss


How does the realization of losses affect taxes?

Realized losses may be applied against capital gains or profits to reduce taxes.

What is a realized loss?

A realized loss occurs when an asset which was purchased at a level referred to as cost or book value is then disbursed for a value below its book value.

What distinguishes loss aversion from risk aversion?

Risk aversion refers to an individual's preference for a certain level of gain over a certain level of loss, whereas loss aversion refers to an individual's preference for avoiding losses rather than acquiring equivalent gains.

In behavioral economics studies, how far do users participate up until the threat of losing equals any incurred gains?

Users will participate up until the threat of losing equals any incurred gains.

What is loss aversion?

Loss aversion is the tendency to prefer avoiding losses over acquiring equivalent gains. The principle is prominent in the domain of economics.

Why would companies go out of their way to realize losses in periods where their tax bill is expected to be higher than wished?

This may be quite desirable for a company looking to limit its tax burden.

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