Are unrealized crypto gains taxable?

Ever taken a peek at your crypto portfolio to happily notice that you’re substantially up from the value you first invested? (If so, we’re jealous… but moving on). If you’ve been sitting tight and holding these assets without actioning anything, these increases in value would be defined as ‘unrealized gains’. To break the definition down, the increases are theoretical gains that you haven’t yet turned into tangible profits.

What’s the difference between unrealized gains and realized gains?

Unrealized gain: An increase in the value of an asset, that has yet to be disposed of for profit

Realized gain: A gain becomes realized once the asset is sold for a profit.

Using an example, let’s say Bob bought 3 ETH when ETH was valued at $500 USD. After looking at his balance in Summ (formerly Crypto Tax Calculator)’s dashboard, he realizes that the 3 ETH now has a total value of $3,000 USD. As he hasn’t sold the 3 ETH, he has an unrealized gain of $1,500 USD. If Bob were to decide to cash in on this increase, and swapped his ETH for fiat currency, then the gain would become realized.

How to calculate unrealized gains?

The math behind calculating unrealized gains (or losses) is relatively simple:

Current value of the asset - cost basis of the asset = unrealized gain or loss

Are unrealized gains taxable?

The simple answer is: no. Generally, tax authorities likely won’t consider gains to be taxable until it has been realized. However, it’s important to note that some regions do apply tax to actions other than realizing gains, such as disposals in the form of swapping one crypto asset for another, or depositing crypto into a liquidity pool. It is also important to note that some regions will tax you on any unrealized gains if you renounce your citizenship from that region.

We recommend talking to a local tax professional and reading our country-specific crypto tax guides to gain a better understanding of what the guidelines are in your region.

How calculating your unrealized gains and losses can help guide your tax strategy

By staying aware of the current value of your unrealized gains or losses, you may be better placed to calculate your position from a tax perspective. For example, if you have a large amount of unrealized losses as well as some realized gains, you would have the option to realize those losses to offset any already incurred gains. Similarly, knowing how much in unrealized gains you have can help guide when to action any realizations for optimal tax consequences.

How Summ can help

The Summ platform is built to help you to track all of your transactions for tax purposes. A huge additional benefit of this aggregation is that we also provide an overview of your balance, cost base and any unrealized gains or losses. In the Dashboard example below, there is $40.07 in unrealized losses. You could use this information to make an informed decision on whether or not you want to realize those losses, and how it will affect your wider tax obligations.

To get started, import your data into Summ and you’ll be on your way!

Disclaimer: The content of this guide is for general informational purposes only. It is not legal or tax advice. Viewing this guide, purchasing or using Summ does not create an attorney-client relationship or a tax advisor-client relationship.

The information in this guide represents the opinions of experienced crypto tax professionals; however, some of the topics in this guide are still subject to debate amongst professionals, and tax authorities could ultimately release guidance that conflicts with the information in this guide. The information contained in this guide is based on the authors’ interpretation of current guidelines. Changes to the guidelines may be retroactive and could significantly alter the views expressed herein. Therefore, use this information at your own risk and for information purposes only.

Consult a professional regarding your individual tax or legal situation.