What is a Realized Gain?
Realized gains are increases in the value of an asset that has been sold. This concept is the opposite of paper profit -- a paper profit only turns into a realized gain when you actually sell the security.
How Does a Realized Gain Work?
Let's assume you own 100 shares of Company XYZ that you purchased for $1,000. If the value of the investment increases to $5,000 but you sell the shares, your realized gain equals $4,000.
Why Does a Realized Gain Matter?
Capital gains are generally only taxable when the asset is actually sold (i.e., when the gains are realized). Changes in tax rates may influence the timing of an investor's decision to realize gains.