What Are Unrealized Gains?
Transcript
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Unrealized gains and losses are changes in value of an investment you hold, such as stocks or bonds, that have occurred since the asset was purchased but have not yet been realized by selling the position. They reflect the difference between the investment’s current market value and its purchase price or cost basis. And they are considered unrealized because they have not been liquidated. Unrealized gains and losses are often referred to as paper profits or paper losses.
When you sell an investment that has appreciated in value, you’ve realized that gain. And Depending on the type of account, the gain may be subject to capital gains tax in the year it was incurred. The same idea applies when an investment loses value—it’s an unrealized loss until you sell it.
Unrealized gains and losses are not reported for tax purposes until the asset is sold. Some investors may choose to realize losses in certain positions in order to offset gains in other positions in the same year and limit the tax consequences. The decision of which investments to sell are unique to the individual and will vary depending on your specific situation.
Video Key Points
• Unrealized gains and losses represent changes in the value of an investment since its purchase but have not been realized by selling the position; they are often referred to as paper profits or paper losses.
• These gains and losses are not reported for tax purposes until the asset is sold, and realizing them may have tax implications, such as capital gains tax for appreciated investments.
• Some investors may choose to realize losses to offset gains in other positions within the same year, thereby limiting tax consequences, with the decision of which investments to sell varying based on individual circumstances.
