Recognized Gain

Ok, first things first: "Recognized" is very different from "Realized." A realized gain is one wherein you had invested, say, $1,000 in a stock; you held it 2 years, and then sold it for $2,500, realizing a gain of $1,500. Before you'd have realized it, i.e. turned it into cash, you'd have recognized that you had a gain.

But what does that mean from an accounting perspective?

Well, recognized gain is the amount earned on an investment. You spent $1,000 to buy shares of a stock; you held them for two years, and then sold them for $2,500. Your recognized gain is $1,500. Pretty simple. But there are some complications. The main one relates to the difference between a "recognized" gain and a "realized" gain. (It's kind of a "did he say that he liked me, or that he liked me liked me?" situation.) So the recognized gain is the gross amount. You bought for $1,000...sold for $2,500: recognized gain of $1,500.

A realized gain, meanwhile, takes out any expenses you incurred. So if you had $25 in broker fees related to the transaction, your realized gain becomes $1,475.

The distinction comes up for tax purposes. When you recognize a gain, you might create a taxable situation. However, depending on the situation, your actual tax liability may depend more on the realized gain.