what is Realized Gain

A realized gain is a profit that an investor or company has earned from selling an asset, such as a stock or real estate, for more than its original purchase price. This type of gain is considered "realized" because it has been actualized through a sale and is therefore tangible and measurable. Here are key points about realized gains: 1. **Definition**: A realized gain is the profit from selling an asset above its original purchase price, representing a tangible increase in value. 2. **Tax Implications**: Realized gains are subject to capital gains tax, and the tax treatment depends on various factors such as the holding period (long-term or short-term) and the investor's or company's overall taxable income. 3. **Example**: If an investor buys 100 shares at $10 each and sells them for $15 each two years later, the realized gain per share is $5. The total realized gain for the investment is $500 ($5 x 100). 4. **Comparison with Unrealized Gains**: Unrealized gains are increases in asset value that have not yet been sold and realized. They are potential profits that exist on paper and are valued at current market prices. 5. **Importance in Financial Statements**: Realized gains are recorded on a company's balance sheet and income statement, contributing to increased current assets and profit from the sale. 6. **Strategic Considerations**: Companies may delay selling assets to avoid tax burdens or use realized losses from other sales to offset gains, thereby reducing taxable income. Understanding the distinction between realized and unrealized gains is crucial for investors and companies to manage tax liabilities, make informed investment decisions, and strategize for reinvestment opportunities.