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Basically, when you own a capital asset, which can be a number of things – like a piece of real estate, Apple stock, or in our context – bitcoin (or any other digital currency for that matter – like Litecoin), you have to keep track of the price you purchase/acquire it at, as well as the price you redeem/sell/dispose of it at.

Let’s say you acquired or bought some bitcoin when 1 BTC was worth $150. You later then sold your bitcoin when 1 BTC was worth $200. If you had held your 1 bitcoin for less than 365 days when you sold it and it was worth $200, you would have a short-term realized gain of $50. If it had been more than 365 days you would have a long-term realized gain of $50. The reason we distinguish between short-term and long-term here is because in the United States, the IRS assigns a different tax-rate to people with short-term gains versus long-term gains.

So, we’ve established what a “realized” gain is. A “realized” loss is the same thing, except that you’ve redeemed/sold/disposed for a loss. If we reversed the above example, and you had acquired/purchased 1 BTC at $200, and then later sold it for $150. That would be a loss of $50. Pretty easy to understand, right?

Now the only part that remains is understanding what an “unrealized” gain or loss is. It’s super-easy! An unrealized gain or loss is simply what your current gain or loss is, as of this very moment in time (or any point in time, as long as you haven’t sold), compared to the price point you acquired/purchased at. It’s unrealized because you haven’t “realized” or “incurred” the actual gain or loss – you still hold the asset… you haven’t disposed, sold, or redeemed it yet.