Unrealized holding gains are not taxable because they represent increases in the value of an investment that has not yet been sold. Taxes are usually incurred only upon the realization of gains when the asset is sold, with certain exceptions depending on tax laws and financial instruments.
An unrealized holding gain refers to the increase in value of an investment that an investor is holding in their portfolio but has not yet sold. The term 'unrealized' means that the gain is only on paper – it has not been converted into actual cash through a sale. According to the tax laws in many jurisdictions, unrealized gains are generally not subject to tax because the gain has not been realized through a transaction. Taxes are typically triggered by the realization of gain, which occurs when the asset is sold and the gain is 'realized'. Certain exceptions apply, such as mark-to-market taxation for some traders or when dealing with specific financial instruments; however, the standard rule is that an unrealized gain is not taxable.