Basis Differential

finance a la shmoop what is a realized gain or loss hey whoa whoa yes those are

all the sounds of realization oh and golly gee willikers yes that too well [Man looking surprised]

when you realize a gain or loss it means that you've turned an investment into

cash if your investment has been profitable then you've realized a gain [Cash stacks landing on each other]

and goes the other way too if you've made an unwise investment and are now [Man placing bets on roulette table]

living in a van down by the river well then you probably realized a loss and

you probably also realized the importance of owning real estate that [White van moving into river]

doesn't roll why is it important to understand realized gains and losses

rhymes with shmaxes well the government at least thus far does not tax Americans

on the assets they have rather it taxes them only when they convert those assets

into cash assets like stocks bonds real estate appreciated crayon drawings that

got sold on eBay for a big price if someone pays you cash then its taxable [eBay crayon listing appears]

the idea being that an investment in a vacuum by itself isn't all that useful

like owning shares in a private company that's probably worth a lot more but may

or may not be worth anything later when you go to sell it or even if that

company's public you own a lot of shares in it well until you turn them into cash [Shares transform into cash]

nothing is certain because even public companies can go down a whole lot in

value so the government keeps its sticky paws off of those things things that are

just investments and only comes a-knockin when the investments are

converted into cash and you know that cash can be used to do stuff like buy [Investment assets transform into pile of cash]

cars and pay tuition and rent and get the occasional multicolored water slide

for the front entryway one big double yellow line on the highway is crossed [Car driving along highway]

after one year that is when you've made an investment and held it for at least a

year and then you go to sell it well you generally get a lower tax rate

applied to you then you would have had you held that investment less than a

year why well if you're holding it a year the government wants to reward you [Man holding stocks]

and it makes the markets more stable when you hold the investments

long period of time so they give you a tax break by encouraging people to marry

investments holding them many years instead of just dating them for a few [Man at altar with investment bride]

weeks while one goal the politicos have is to create a more stable predictable

investment climate it makes a lot of sense all right and predictable is good

like a pun at the end of a shmoop video oh we barely got one in there [Man sitting on a bench and bear appears]