Unrealized gain

Unrealized Gain

The increase in value of an asset that has not yet been sold, representing a “paper profit” that has not been realized through an actual transaction.

For instance, if an investor purchases shares of stock for $10,000 and their market value increases to $15,000, but the investor continues to hold them, the $5,000 difference represents an unrealized gain that exists on paper but hasn’t been converted to actual profit through a sale.

Accounting treatment for unrealized gains varies by asset type and business purpose. For trading securities, unrealized gains affect net income; for available-for-sale securities, they appear in other comprehensive income; for held-to-maturity investments, they’re generally not recognized until realization. Unlike realized gains, unrealized gains don’t generate immediate tax consequences for most assets (with exceptions like mark-to-market securities for certain taxpayers). They represent potential rather than actual economic benefits until a sale transaction occurs.