Realized gain or loss refers to the profit or loss that is actually incurred when an investment is sold or otherwise disposed of. It contrasts with unrealized gain or loss, which is the potential profit or loss on paper, based on the current market value of an investment.
Here’s how to calculate realized gain or loss:
Realized Gain:Realized Gain=Selling Price−Purchase Price−Transaction CostsRealized Gain=Selling Price−Purchase Price−Transaction Costs
Realized Loss:Realized Loss=Purchase Price−Selling Price−Transaction CostsRealized Loss=Purchase Price−Selling Price−Transaction Costs
In these formulas:
- Selling Price: The amount for which the investment was sold.
- Purchase Price: The amount at which the investment was initially acquired.
- Transaction Costs: Any costs associated with buying or selling the investment, such as brokerage fees or transaction fees.
For example, if you bought a stock for $1,000, paid $10 in transaction costs, and later sold it for $1,200, your realized gain would be $1,200 – $1,000 – $10 = $190.
Realized gains or losses have tax implications. Depending on the holding period and local tax laws, they may be subject to capital gains taxes. It’s important to keep track of these gains and losses for tax reporting purposes.