Realised vs Unrealised P&L: What's the Difference?
Realised gains/losses are profits or losses from actual sales of assets. Unrealised gains/losses are paper profits/losses on assets you still own. Understanding the difference is crucial for tax planning and portfolio assessment.
Quick Definitions
- Realised P&L: Money you've actually made or lost from selling assets. This is what you report on your tax return.
- Unrealised P&L: Paper gains/losses on assets you still hold. Not taxable until you sell.
- Key Point: You only pay tax on realised gains. Unrealised gains are just potential until you sell.
Why does it matter?
Many investors confuse their portfolio's current value (unrealised) with actual taxable income (realised). This can lead to poor tax planning and unrealistic expectations about available cash.
Real-World Example
You bought 100 shares of NVDA at $100/share ($10,000 total):
- Current price: $150/share = $15,000 value
- Unrealised gain: $5,000 (paper profit, not taxable yet)
- If you sell: $5,000 becomes realised gain (taxable)
You can't spend unrealised gains. They're locked in the asset until you sell.
Tax Planning Implications
Understanding realised vs unrealised helps you:
- Plan tax payments (only realised gains are taxable)
- Time your sales to optimize tax brackets
- Understand your actual cash position
- Make informed decisions about when to realise gains/losses
Key Takeaways
- Unrealised gains are not income—they're potential until you sell.
- Only realised gains trigger tax liability—plan your sales accordingly.
- Track both separately—your portfolio dashboard should show both metrics clearly.
- Don't confuse portfolio value with available cash—unrealised gains are locked in assets.