Unrealized holding gain definition
/An unrealized holding gain is an increase in the value of an asset that a business or individual continues to hold. This gain has not yet been reported as a realized gain on the entity's income statement. Once the asset has been sold, the gain is considered to be realized.
Assets are frequently held even after a gain in their value has occurred, for the following reasons:
You expect to generate a further gain
You do not want to pay taxes on the gain
There is a non-monetary reason for holding the asset; perhaps it has been in the family for an extended period of time, and there is family resistance to selling it.
Example of an Unrealized Holding Gain
An investor owns property that originally cost $500,000. The market value of the property has since increased to $800,000, resulting in a $300,000 unrealized holding gain.
Accounting for Unrealized Holding Gains
Unrealized holding gains can be accounted for in several ways, depending on the relevant accounting standards and business objectives. Under fair value accounting, such gains may be reported in other comprehensive income (OCI) for available-for-sale securities or directly in net income for trading securities. Alternatively, firms may defer recognition until the asset is sold, particularly for long-term investments. Some entities use valuation allowances to reflect unrealized changes without affecting earnings.