Realized Gain

What Is a Realized Gain?

A realized gain is the profit from an investment that has actually been sold. Until the sale happens, any increase in value is only an unrealized gain, sometimes called a paper gain, because the investor still owns the asset and the gain could change with the market. Once the asset is sold, the difference between the sale proceeds and the investor's cost basis becomes a realized gain. The profit is then fixed, and it is generally the point at which tax consequences arise.

How It Is Calculated

The basic calculation is simple:

Realized gain = Sale proceeds - Cost basis

Sale proceeds are the amount received after subtracting selling costs such as brokerage commissions and fees. Cost basis usually includes the purchase price plus any commissions or fees paid when buying. If the result is negative, the sale produces a realized loss instead.

Example

Suppose an investor buys 100 shares of a company at a total cost of 5,000 dollars, then sells all of them later for 6,500 dollars after paying a small fee. The realized gain is the net sale proceeds minus the 5,000 dollar cost basis. Had the investor kept the shares, the same increase would only be an unrealized gain, and nothing would be taxed yet.

Why It Matters to Investors

Realized gains matter mainly for taxes. In many countries, including the United States, realized gains on investments held in taxable accounts are subject to capital gains tax. The rate often depends on how long the asset was held, with gains on assets held longer than a set period often taxed at lower rates than short-term gains. Investors commonly track realized gains and losses across the year, since losses can offset gains under certain rules. Tax rules vary by jurisdiction and change over time, so investors may wish to consult a qualified tax professional about their own situation.