What are unrealized gains & losses?

An unrealized gain occurs when an investment’s current market value exceeds its purchase price. Conversely, an unrealized loss happens when an investment’s market value falls below what you originally paid, but you still own the asset.

Because these gains or losses exist only on paper, they reflect potential (not actual) profits or losses.

For example:

• You bought stock for $1,000. Its current value is $1,200. That $200 increase is an unrealized gain.

• If the same stock’s price dropped to $800, you’d have an unrealized loss of $200.

Unrealized gains and losses are often called “paper” gains or losses because they appear only on account statements, not in your bank account.

Since you haven’t sold the investment, the gain or loss is not locked in and could change quickly with market movements. Once the asset is sold, the gain or loss becomes realized, and it can’t reverse.

• Realized gains/losses: Occur when you sell or dispose of the asset and lock in the profit or loss.

• Unrealized gains/losses: Reflect potential changes in value while you still own the asset.

In short, unrealized changes affect your portfolio value, while realized changes affect your taxes and cash flow.

Unrealized gain/loss = ($X market price – $Y purchase price) x Z shares owned

Example:You purchased 100 shares at $50 each. The current market price is $65.

($65 market price – $50 purchase price) x 100 shares owned = $1,500

You have an unrealized gain of $1,500.

If the price dropped to $45, your unrealized loss would be:

($45 market price – $50 purchase price) x 100 shares owned = -$500

You have an unrealized loss of $500.

Several factors can affect unrealized gains and losses, including:

• Market price movements: Driven by supply and demand for the asset.

• Economic and company fundamentals: Shifts in earnings, growth outlook, or balance sheet health.

• Market volatility: Broader swings in investor sentiment can impact prices.

• Interest rate changes: Particularly for bonds and fixed-income securities.

Even though they aren’t taxable yet, unrealized gains and losses:

• Help you evaluate investment performance.

• Provide additional context when reviewing portfolio changes over time.

• Contribute to tax planning, as realizing a loss can offset other gains.

By tracking unrealized amounts, investors can anticipate portfolio risk and better manage rebalancing strategies.

In the U.S., unrealized gains and losses generally aren’t taxed because no sale has occurred. Taxes typically apply only once a gain or loss becomes realized through a transaction.

This distinction helps long-term investors defer taxes until they sell and potentially benefit from lower long-term capital gains rates.

When you sell or otherwise dispose of the asset, the previously unrealized amount becomes realized, which may trigger:

• Capital gains taxes on profits.

• Capital loss deductions (subject to limits) if you sold for less than your cost basis.

In corporate accounting, unrealized gains and losses appear in different ways depending on asset classification:

• Trading securities: Unrealized changes go through the income statement.

• Available-for-sale securities: Changes appear in other comprehensive income (OCI) on the balance sheet.

This ensures that investors and analysts can see value fluctuations, even if those gains or losses haven’t yet been realized.

Unrealized gains and losses help analysts gauge how asset portfolios are performing under current market conditions. However, they don’t represent cash in hand.

Understanding these disclosures helps investors assess:

• Embedded risk and opportunity in a portfolio.

• Potential future earnings or write-downs.

• A company’s financial health and exposure to volatility.

• Mistake #1: Thinking an unrealized gain is “free money.” It’s not realized until you sell — and values can reverse.

• Mistake #2: Ignoring unrealized losses. Even if you don’t plan to sell, losses can reveal declining asset quality or risk exposure.

• Mistake #3: Assuming you owe tax on unrealized gains. You generally don’t — unless in a taxable mark-to-market situation.

• Mistake #4: Focusing only on unrealized changes instead of total return (which includes dividends and interest).

• Mistake #5: Making decisions solely on paper values without factoring in costs, taxes, and your broader strategy.

Unrealized gains and losses represent the behind-the-scenes shifts in your investments’ market value. While they don’t translate into cash until you sell, tracking them can help you understand your portfolio’s performance, manage taxes efficiently, and interpret investment statements more clearly and understand how market changes affect your portfolio.

By understanding how unrealized and realized gains differ, and how they affect your finances, you can interpret your investment statements more effectively and plan strategically for the future. 

Grow your savings with confidence

Because market-based investments can fluctuate in value, some people also think about how they balance investments with lower-volatility savings options. Compare high-yield savings accounts and CDs on the Raisin platform to diversify your savings with predictable returns — all in one place.

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.