Originally Posted by TaxGuru

The key issue here is the difference between recognized loss and realized loss. The recognized loss is the loss that was utlimately made when you sold your stock for a loss.

The 1099 Misc from the Brokerage Firm reports the stock transactions that resulted in either a recognized loss or a gain. These are the reported transactions that are reported to the IRS. In other words, these transactions are ones where the stock position has been closed, either you did a short sale and covered your open position or simply sold the stock that you had bought. All of these transactions are considered as reportable transactions.

However, stocks that you bought in 2006 but did not sell in 2007 are considered open positions and are not reportable transactions. Hence, the Brokerage House is not required to report these on the Yearly 1099 Misc Report.

So, your so called unrealized losses are not recognized until you phyiscally sold your position. The IRS will not accept these losses because the taxpayer has maintained an open position.

When in fact, you do sell your position in the near future, at that time you may claim your losses assuming the stock has not rebounded by then.