A holding loss is a reduction in the value of an asset that continues to be owned. Depending on the circumstances, a holding loss may be recognized by the holder of the asset. Alternatively, the loss may not be recognized until the asset is dispositioned at a future date. A holding loss cannot be used to offset taxable gains; the related asset must first be sold.
For example, an investor holds shares of ABC Corporation for which he paid $10,000. The market price of the shares subsequently declines to $7,000. The investor continues to hold the shares, so he experiences a holding loss of $3,000.
The owner of an asset may elect to incur a holding loss and not sell an asset, hoping that it will regain the lost value at a later date.
A holding loss is also known as a paper loss.