Realized vs. Unrealized Gains and Losses: What's the Difference?

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A realized gain is the profit you lock in when you sell an asset for more than its cost basis (what you paid, plus certain costs such as commissions). An unrealized gain is the increase in value of an asset you still hold. It exists only on paper, because the price can still move before you sell. A realized loss comes from selling below cost, and an unrealized loss is a decline in value on a position you have not closed. The sale, or another disposal such as an exchange, turns one into the other.

How It Works

The calculation is the same for both. The only difference is which price you plug in.

Realized gain or loss = Sale proceeds − Cost basis

Unrealized gain or loss = Current market value − Cost basis

Sale proceeds are the amount received after selling costs. Cost basis is the purchase price plus acquisition costs, adjusted for events such as stock splits, reinvested dividends or return of capital. A positive result is a gain and a negative result is a loss.

When you sell only part of a position, only the shares sold produce a realized figure, and the remaining shares keep an unrealized gain or loss. If you bought shares at different prices, the lot-selection method (for example, first in, first out, or specific lots you choose) sets the basis of the shares sold, so it changes the realized amount on the same sale.

Example

Hypothetical, ignoring fees and dividends. You buy 100 shares at $40, so your cost basis is $4,000. The stock rises to $55.

• Unrealized gain: (100 × $55) − $4,000 = $1,500. Nothing is taxed, and the figure will change with the next price move.

You then sell 60 shares at $55.

• Realized gain: (60 × $55) − (60 × $40) = $900. This amount is now fixed and reportable for that tax year.
• The 40 shares you kept carry an unrealized gain of 40 × ($55 − $40) = $600.

If the price later falls to $35, those 40 shares show an unrealized loss of 40 × ($35 − $40) = −$200. The $900 realized gain does not change, because the price drop affects only the shares you still own.

Why It Matters: Taxes and Timing

Under U.S. federal rules, a sale is generally a taxable event and holding is not. The holding period sets the rate. If you held the asset for more than one year, the gain is long-term and qualifies for the lower long-term capital gains rates. If you held it for one year or less, the gain is short-term and is taxed at ordinary income rates. These rules are summarized in IRS Topic No. 409, Capital Gains and Losses.

Because the tax applies at realization, the date of the sale matters:

• Waiting past the one-year mark can move a gain from short-term to long-term treatment.
• Selling in early January instead of late December moves the gain into the next tax year.
• Harvesting losses means selling positions that have fallen in value to realize losses that offset realized gains. If net losses exceed gains, individuals can deduct up to $3,000 a year against ordinary income ($1,500 if married filing separately) and carry the rest forward.
• The wash-sale rule disallows a loss if you buy the same or a substantially identical security within 30 days before or after the sale.

These rules apply to taxable accounts. Gains inside tax-advantaged retirement accounts are treated differently.

Brokerage statements usually separate the two: a realized gain/loss report lists closed lots with dates and basis, and the portfolio view shows unrealized gains on open positions. A “YTD realized loss” is the net realized loss on positions closed so far in the calendar year. Only realized figures feed your tax return.

Realized and Unrealized Gains in Company Accounts

For businesses, a realized gain arises when an asset is sold and removed from the balance sheet. The gain is reported in the period of the sale, and the cash or receivable received increases the company’s assets.

Unrealized gains can also appear in financial statements when assets are carried at fair value. Under U.S. GAAP, changes in the fair value of most equity securities flow through net income, while unrealized changes on available-for-sale debt securities go to other comprehensive income until the securities are sold. Whether unrealized gains reach net income therefore depends on the asset type and the accounting standard.

Funds follow similar logic. A fund’s net asset value (NAV) reflects unrealized gains on its holdings. When a mutual fund sells holdings at a profit, the realized gains may be distributed to shareholders, who can owe tax even if they never sold their own fund shares.

Common Confusions

Unrealized gains vs. capital gains. In tax usage, a capital gain is the realized gain from selling a capital asset. An unrealized gain is a potential capital gain that becomes taxable only once it is realized.

Realized gains vs. realized income. Realized income is money earned and received, such as wages, interest or dividends. Dividends and interest are taxable when paid, even if you never sell the investment. Realized gains come only from disposing of the asset.

Gain vs. return. A dollar gain ignores time and the amount invested. Measures like return on investment (ROI) or CAGR put gains in context and can include both realized and unrealized amounts.

Realized and unrealized foreign exchange gains. Exchange-rate moves on a business’s foreign-currency receivables or payables create unrealized FX gains or losses until the item is settled, when they become realized.

Limitations

An unrealized gain is only an estimate based on the current price. For thinly traded assets, the quoted price may not be achievable on a large sale. Unrealized figures also ignore the tax and transaction costs that selling would trigger, so they overstate what you would actually keep. Realized figures have their own blind spot: a year with large realized gains says nothing about the open positions that may be sitting on losses.

The Bottom Line

Investors with taxable accounts need to track the difference, because only realized gains and losses reach the tax return. The timing of a sale, the holding period, and the lots chosen all change what you owe. Unrealized figures help gauge a portfolio but overstate what you would keep after taxes and selling costs.