Realized and Unrealized Capital Gains

There are two different ways your capital asset can increase in value. These are called unrealized and realized gains.

If an asset increases in value while you are still holding onto it, the increase is called an unrealized gain. Stocks in a portfolio may go up and down in value, but their gains or losses go unrealized until you sell the stock. For example, if you buy a stock for $100 and a month later the stock is valued at $150, you have an unrealized gain of $50. Realized gains happen when you sell an asset. The realized gain is the difference between the price of the asset at the time you sell it and the original price you paid for it. When a security such as a stock is traded, its gain or loss is said to be "realized." Only realized gains and losses are reported on your tax returns.

Knowing the difference between realized and unrealized capital gains can have an important impact on your investment strategy if you are trying to minimize your exposure to taxation.

Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice.