Unrealized Capital Gains

• An unrealized capital gain is one that has not yet been recorded. If you own a stock that doubles in price, you have an unrealized gain of 100 percent of the stock's original value. However, unless you sell that stock and take the money, that gain is only a paper gain. It only becomes a "real" gain when you sell the stock and have the money in your possession. Most financial services companies provide reports of unrealized gains on investor statements, showing the amount of gain since the original purchase of an investment. To make your own report, simply subtract the current value of your stock from your original purchase price. The difference is your current unrealized gain.
  
  

Capital Gains Tax

• One of the benefits of keeping a gain unrealized is that you usually don't have to pay taxes on an unrealized gain. Even if your unrealized gain report shows a profit, the IRS is not interested from a tax standpoint until you sell the investment and realize the gain. As a result, you do not have to report your unrealized gains to the IRS.
  
  

Using Unrealized Gains Reports

• One of the most useful ways you can report your unrealized gains is to contrast them with your realized gains. Capital gains tax law states that you can use capital losses to offset capital gains, thereby reducing your tax. If you have already realized losses in your investment portfolio but your unrealized gain report shows profits, you might consider selling some of your profitable stock and using your realized losses to offset those gains. In this way, your unrealized gain report will show you how much stock you can sell without having to pay capital gains tax on the profits.
  
  

Realizing Capital Gains

• Once you sell your investments, you can no longer report their gains or losses on your unrealized gains report. The simple act of selling investments transforms unrealized gains and losses to realized gains and losses, meaning you must also report these transactions to the IRS when you file your taxes.