Buy Crypto
Web3 new
Academy > Technical Analysis > What Are Unrealized Gains and Losses? >

What Are Unrealized Gains and Losses?

2022-11-08 13:49:08


  • Unrealized gains are “on paper” profits, meaning they are not actual, “in-the-pocket” profits.
  • Unrealized gains and losses are subject to market fluctuations; until the asset is sold or disposed of, a gain can become a loss, and vice-versa.
  • Unrealized gains are not subject to taxation as these are not actual gains.

unrealized gains

What are Unrealized Gains?

When you’re trading or investing in a stock/crypto, and its value appreciates, that is called an “unrealized gains.” Until you sell your investments, that gain can increase or decrease with price fluctuation.

So, an unrealized gain is a profit that, although belonging to the investor “on paper,” is still subject to market value fluctuation and is not understood as true profit until withdrawn at sale— at which point it would become “realized.” Unrealized gains are also known as “paper profits” for this very reason.

What Are Unrealized Losses?

Unrealized losses are those losses that have been incurred but have not yet been realized. In other words, unrealized losses are paper losses that have not yet been realized through the sale of the asset.

For example, if you purchase a stock for $100 and it subsequently drops in value to $50, you have incurred a $50 unrealized loss. Your unrealized losses will become realized when you sell the stock for $50. At that point, the $50 loss will be reflected on your investment statement.

Unrealized losses can occur in any type of investment, including crypto, stocks, bonds, mutual funds, and real estate. In the case of stocks and mutual funds, unrealized losses are also sometimes referred to as paper losses.

While unrealized losses can be unsettling, it’s important to remember that they are not actual losses until you sell the asset and realize the loss. Therefore, if you believe that the asset’s value will eventually rebound, it may be best to hold onto the asset and wait for the unrealized loss to become a realized gain.

Get 180 welcome bonus at Phemex

Unrealized Gains & Losses: An Example

  • Bitcoin was trading at $42,000 in September 2021.
  • By November 2021, the price of Bitcoin had risen to $68,000.
  • If an investor had bought 1 BTC in Sep 2021, his unrealized gain would be $26,000 ($68,000 – $42,000). If he sells, that $26,000 unrealized gain would become a realized gain.
  • But what if he did not sell? In May 2022, Bitcoin fell to $30,000, just six months later. If he had not sold back in November 2021, his $26,000 unrealized gains would have turned into $12,000 unrealized losses.
  • If he sold off his BTC in May 2022 (because he has paper hands), that $12,000 unrealized loss will become a realized loss.

unrealized gains 1

Until point of sale, all profits and losses are unrealized and subject to fluctuation. (Photo by on Unsplash)

How Is Unrealized Gain Calculated?

If you’re looking to use unrealized gains to track your portfolio performance, calculate potential capital gains tax, or anything else, you will need to understand how to calculate unrealized gains and losses.

The method of calculation is the same no matter the asset–be it a stock, crypto, NFT, or real estate:

Unrealized gain/loss = Current value of investment – initial value ofinvestment

Unrealized Gains vs Realized Gains: What’s the Difference?

A realized gain, on the other hand, is what you get when you sell those stocks/crypto and cash out your profit.

Similarly, unrealized losses is what you’re sitting on when the assets you purchased have gone down in value. When you sell these off and cash out your investments, your losses become “realized” i.e. real.

get free crypto by just watching videos

Do You Pay Taxes on Unrealized Gains?

Unrealized gains are currently not taxable i.e. you do not have to report it in your annual tax return. However, in October 2021, the treasury secretary of the USA, Janet Yellen, proposed imposing capital gains tax on unrealized gains for wealthy individuals who currently use this system to avoid paying their share of taxes.

Capital Gains vs Unrealized Gains: Are They The Same?

No, capital gains and unrealized gains are not the same. Capital gains only occur when an investment is sold, and the proceeds are received. Unrealized gains are paper profits or losses that have occurred on an investment but have not yet been realized through a sale.

So, in order for unrealized gains to become realized, the investment must be sold. Once the investment is sold, then the unrealized gains become realized and can be counted as income or loss on your taxes.

In other words, capital gains = realized gains.

Capital gains are only taxed if they are realized, which means when you sell off, or “dispose” the asset. These gains have to be reported in the year it was realized.

How can unrealized gains help with capital gains tax?

As unrealized gains are non-taxable, HODLing, or holding on to an investment instead of selling, can mean avoiding capital gains tax on your profits. Additionally, if holding an unrealized loss, selling can mean reducing overall profits, which can mean less tax or even slipping into a lower tax bracket.

unrealized gains 2

Both realized and unrealized gains are types of profit, but while one is fixed-value profit, the other is changeable. (Source: Photo by Alexander Mils on Unsplash)

Do unrealized gains count as income?

No, unrealized gains do not count as income. Unrealized gains are simply paper profits or losses that have occurred on an investment but have not yet been realized through a sale. Once an investment is sold and the proceeds are received, then the gains or losses become realized and can be counted as income or loss on your taxes.

(BTW,  when we read about some tech tycoon or billionaire celeb being “worth X dollars,” it does not mean they physically have that money. Their worth is usually tied up in investments with “on paper” profits that are not “realized.”)

Do unrealized gains affect net income?

No, unrealized games are shareholder equity and should not appear on your income sheet, as they are not a true, taxable income, and as explained earlier, are subject to change due to price fluctuation.

Earn 8.5% apy on Crypto Interest account

Can you reinvest unrealized gains?

No, because in order to reinvest those gains, you have to cash out your unrealized gains, in which case it then becomes realized.


Stocks, shares, and crypto unrealized gains, among others, can help investors with their portfolio allocation and capital gains tax. Unrealized gain/loss are easy to calculate and remain unrealized until point of sale—whereupon they become realized and subject to capital gains tax.

For any inquiries contact us at
Follow our official Twitter | Join our community on Telegram
Trade crypto on the go: Download for iOS | Download for Android
Phemex | Break Through, Break Free
giftRegister to get $180 Welcome Bonus!
Invitation code (Optional)
  • Facebook
  • Twitter
  • LinkedIn
  • Telegram
  • Discord
  • Youtube
Subscribe Phemex

Register on Phemex and begin your crypto journey today

Get $180 to Sign Up


Pulse Arrives on TON & Create your own group to get 2000 $PULSE