Realized vs unrealized gains
What realized and unrealized gains mean
Realized and unrealized gains show two ways of tracking profit on something you own. A realized gain appears when you sell, swap, or use the asset, so, it's locked in by your action. Unrealized gain is different: that's the increase in value while the asset stays in your possession.
Most countries only consider realized gains for tax. If the price rises but you hold on, you're usually not taxed, because you haven't turned that increase into cash or a different asset. The tax is usually triggered the year you dispose of your holding.
Which actions count as a disposal
In tax rules, a disposal means your ownership of an asset has ended, at least as the law sees it. Disposals can be selling crypto for euros, dollars, or another currency, swapping one crypto asset for a different one, or spending your crypto, maybe for a service, maybe for goods. In some countries, even gifting an asset can be a disposal.
Transferring crypto between your own wallets, on the other hand, typically stays outside this definition because you still own it. Every country writes its own rules, so you'll need to check how yours treats each transfer or use. Markets like crypto or gold can move fast; an unrealized gain may be lost before you actually sell. Your final gain is measured from what you paid, as covered in what cost basis is.
Suppose a crypto holding doubles before you sell
If you put 1,000 euros into crypto and it's worth 3,000 euros at the end of the year, but you don't sell, you have a 2,000 euro unrealized gain. In a country where gains are only taxed on disposal, you owe no tax yet for simply holding.
Once you sell in a later year, let's say for those 3,000 euros, the gain becomes realized. Tax applies then, under rules for that year's taxes. If you sold at a loss instead, your gain would vanish or shrink. Prices may rise or fall, and there's always risk.
When paper gains can still be taxed
Some countries do tax assets you keep. Wealth tax, found in Spain and a few Swiss cantons, is charged yearly based on asset value. Other approaches, like box 3 in the Netherlands, assume you get a fixed (deemed) return each year on your wealth, whether you do or not.
Exit taxes work differently. In some states, leaving the country can trigger tax, as if you'd already sold certain assets, so you might owe tax on gains you haven't yet turned into cash. Rules are country-specific and can change. See Crypto wealth tax for digital asset details in these systems.
Frequently asked questions
Is unrealized crypto profit taxable?
Usually it isn't, if your country taxes only realized gains. But some countries do impose wealth tax or use a notional return, so tax can apply to just holding an asset, even without a sale. Your location and how the rules treat crypto decide your answer here.
Does holding gold or crypto create a tax bill?
In most countries that tax gains when assets are disposed of, holding isn't taxed by itself. Tax may apply if you sell, swap, or spend the asset. There are exceptions, such as annual wealth taxes and exit taxes in certain places. Tax rules can be complex and change frequently, so it's a good idea to check with your tax authority or a professional adviser.