What are unrealized gains?

If you’re holding stocks or other assets, the act of selling them for a profit or at a loss results in gains and losses. Find out what happens in the meantime.

Assume you bought a stock at the price of $100, and it decreased to $70, and you sold it. That would be a $30 capital loss for you. The same also applies to the opposite scenario where the stock’s price goes up by $30, but it would be a capital gain in that case. 

That said, the sold stocks that bring gains or losses are realized. But, of course, this only happens when there is an act of selling. Until the stock is sold, the gain or the loss is unrealized. Although the term unrealized gains or losses is a term that’s not heard as often, it has some tax implications.

What is unrealized gains tax?

Since you won’t pay taxes on what you lost or something that you haven’t earned yet, the unrealized gains tax doesn’t really apply to your federal income tax return – until they are realized. 

In other words, the unrealized gains you have for the tax year aren’t taxable; and the unrealized losses aren’t deductible. Planning the tax consequences of unrealized gains and losses that are yet to be realized can help you have an overall lower tax bill.

While the consequences of gains mean more money to invest and losses are losses, understanding when to realize your capital gains and losses can give you a better idea of how to plan out for the future. Whether you’re holding a stock hoping that it will increase or it will get back up, unrealized gains and losses tell a lot about an investor’s portfolio.

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