How many times have you heard someone say, "You don't have a loss until you sell"? If that were true, it would also hold true for capital gains. Few investors will dismiss their unrealized gains as mere paper gains.

Handle unrealized capital gains to your advantage

Recognizing a capital gain triggers a capital gains tax, at short or long-term rates. In a taxable portfolio, the effective value of all unrealized gains should be discounted due to the potential tax. Avoiding or delaying recognition of a gain preserves the gain and avoids the tax.

Long-term capital gains get a favorable 15% tax rate. Even so, that cannot compare with the zero rate on unrealized gains. Whether short or long-term, the best approach to handle capital gains: do not disturb them. At some point in the future, when you really need the funds, your capital gains will still be there.

Paper gains are the best.

Benefit from recognizing a capital loss

No investor sets out to buy a stock that will fall in value. Nevertheless, any stock position carries such a risk.

Selling a stock for a capital loss provides a tax benefit. To exercise that benefit, you must sell the stock. Sitting on an unrealized loss will not change the loss. The harm in doing nothing, though, is giving up the tax benefit from recognizing the loss.

An unrealized capital loss is real. Take it.