paper profit

paper profit

See unrealized gain.

---

Paper Profit

A gain on an investment that has not yet been realized. That is, paper profit occurs when the current price of a security is higher than the price the holder paid for it, but the holder still owns the security. As a result, there is the possibility that the paper profit might be erased if the price goes back down. A paper profit represents an increase in one's net worth, but it may or may not affect one's lifestyle. Under most circumstances, one is not taxed for paper profit; the government waits until gains and losses are realized. See also: Paper loss.

---

Paper profit (or loss). If you own an asset that increases in value, any increase in value is a paper profit, or unrealized gain. If you sell the asset for more than you paid to buy it, your paper profit becomes an actual profit, or realized gain.

The same relationship applies if the asset has lost value. You have a paper loss until you sell, when it becomes a realized loss.

You owe no capital gains tax on a paper profit, though you use the paper value when calculating gains or losses in your investment portfolio, for example. The risk with a paper profit is that it may disappear before you realize it. On the other hand, you may postpone selling because you expect the value to increase further.

---

paper profit

(1) An increase in the value of real property, so one has a profit on paper even though the property has not been sold.(2) The profit from an income-producing property that has an accounting profit on which the owner has to pay income taxes, but that has a negative cash flow requiring cash infusion from the owner in order to pay bills. This can occur if debt service payments are high, because only the interest portion is a deductible expense, even though the owner must write checks for interest and principal.It can also happen if customers or tenants are not paying their bills on time, so that the receivables are large, or if the property owner must expend large sums of money making upgrades or repairs that must be capitalized rather than written off as expenses.