Realized Gain

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Definition of 'Realized Gain'

A realized gain is the profit earned when an asset is sold for more than its purchase price. The gain is realized when the asset is sold, and it is calculated by subtracting the purchase price from the sale price. For example, if you buy a stock for $100 and sell it for $120, your realized gain is $20.

Realized gains are important because they represent the actual profit earned from an investment. Unrealized gains, on the other hand, are the profits that have not yet been realized because the asset has not been sold. For example, if you own a stock that is worth $120 but you have not sold it, you have an unrealized gain of $20.

Realized gains are taxed at the capital gains rate, which is lower than the ordinary income tax rate. The capital gains rate is currently 15% for most long-term gains, and 20% for short-term gains.

It is important to understand the difference between realized and unrealized gains when making investment decisions. Realized gains are taxed, while unrealized gains are not. This means that it is generally better to sell an asset when it has appreciated in value, rather than holding on to it and hoping that it will continue to appreciate.

However, there are some exceptions to this rule. For example, if you are in a high tax bracket, you may want to hold on to an asset that has appreciated in value in order to defer the taxes on the gain. Additionally, if you are planning to retire soon, you may want to sell some of your assets in order to generate income that will be taxed at a lower rate.

Ultimately, the decision of whether to sell an asset or hold on to it depends on a number of factors, including your tax bracket, your investment goals, and your risk tolerance.

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