Realization of gain - sustany/dvg GitHub Wiki

Realization of gain is when an asset is sold at a price higher than its adjusted cost basis. Section 1001 of the Internal Revenue Code states that the gain from the sale of property is the �excess of the amount realized therefrom over the adjusted basis,� and states that �the amount realized from the sale. . . of property shall be the sum of any money received plus the fair market value of the property (other than money) received.� Put more simply, the amount realized from a sale is the money received plus the fair market value of any non-money received, and the realized gain is the amount realized over that property�s adjusted basis.�

For example, imagine an individual purchased land for $1,000 five years ago and exchanged it today for $1,100 cash and another parcel of land with a fair market value of $500. The seller would realize $600 in gain. Note that the realization of gain differs from the recognition of gain. Not all gain realized is recognized�i.e. taxable�because of certain income tax provisions and exemptions.