A realized loss occurs when the sale price of an asset is lower than its carrying amount. This loss is only considered to be realized when the asset is removed from the entity's accounting records. Thus, a loss is only realized when the associated asset has been sold in an arm’s length transaction, donated, or scrapped. For example, an investor pays $500 for several shares of stock. Two years later, he sells the shares for $400. His realized loss is the $100 difference between the purchase price and the sale price of the stock.
A realized loss can be included on an entity's tax return as a reduction of taxable income. A business may choose to realize losses on as many assets as possible when it would otherwise have to pay taxes on realized profits or capital gains.