Paper profit refers to the increase in the value of an investment that has not yet been realized through a sale. This means that while the investment may show a higher value on paper, the profit is not actualized until the asset is sold. Paper profit is also known as unrealized profit, as it reflects potential gains that exist only on paper until the investment transaction occurs.
In legal and financial contexts, paper profit is often discussed in relation to investments, securities, and tax implications. It is relevant in areas such as:
Understanding paper profit is crucial for investors and individuals managing their portfolios, as it affects decisions regarding when to sell an asset and how to report earnings for tax purposes. Users can utilize legal templates from US Legal Forms to help manage their investment documentation and tax reporting.
Here are a couple of examples of abatement:
Example 1: An investor purchases shares of a company for $100 per share. Over time, the share price increases to $150. The investor now has a paper profit of $50 per share, which is unrealized until they sell the shares.
Example 2: A homeowner buys a property for $300,000. After several years, the property value rises to $400,000. The homeowner has a paper profit of $100,000, which will only be realized if they sell the property. (hypothetical example)
| Term | Definition | Difference |
|---|---|---|
| Realized profit | Profit that has been actualized through the sale of an asset. | Realized profit is tangible, while paper profit is not. |
| Capital gain | The increase in the value of an asset that is realized when sold. | Capital gain refers specifically to the profit from the sale, unlike paper profit. |
If you find yourself with paper profits, consider the following steps:
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| Attribute | Details |
|---|---|
| Definition | Increase in investment value not yet realized. |
| Tax implications | Not taxable until realized. |
| Investment types | Stocks, real estate, and other assets. |
Paper profit is the increase in the value of an investment that has not yet been sold.