What is an Unrealized Gain?

FAQ: What is an unrealized gain?

Answer: An unrealized gain is a profit that exists on paper, resulting from an investment. It is a profitable position that has yet to be sold in return for cash, such as a stock position that has increased in capital gains but still remains open. A gain becomes realized once the position is closed for a profit.

Generally, unrealized gains occur because an investor believes the investment is likely to go higher. Unrealized gains sometimes come about because holding an investment for an extended time period lowers the tax burden of the gain. For example, if you hold a stock for longer than one year, your tax rate is reduced to the long-term capital gains tax rate. And if you want to move the capital gains tax burden to another tax year, you can sell the stock in January of a next year, instead of selling in the current year.

Additionally, many corporations will carry their unrealized gains on their balance sheets.  It is common for companies to have unrealized gains or losses.