Amount realized

Amount Realized is defined by § 1001(b) of Internal Revenue Code, and is one of two variables in the formula used to compute gains and losses when determining gross income for tax purposes. The Amount Realized – Adjusted Basis tells the amount of Realized Gain (if positive) or Realized Loss (if negative).

Computation of gain and loss is governed by § 1001(a) of the Internal Revenue Code.

tatutory definition

Section 1001(b) of the Internal Revenue Code defines the amount realized as “the sum of any money received plus the fair market value of the property (other than money) received.” Generally, this translates to the value of what the taxpayer receives in the exchange.

Calculating amount realized

In order to have an "amount realized" there must be a kind of exchange. This exchange is known as a "realization event." The first step in calculating the amount realized is determining when an exchange that qualifies as a “realization event” has occurred. Section 1001 requires that there be an exchange where the taxpayer receives money or other property in the transaction. In Helvering v. Bruun, the United States Supreme Court has held that a “ [g] ain may occur as a result of exchange of property, payment of the taxpayer’s indebtedness, relief from a liability, or other profit realized from the completion of a transaction.” 309 U.S. 461 (1940). To state it more clearly, the Supreme Court lists four events that trigger realization of gain or loss: 1) a property exchange, 2) relief of a legal obligation owed to a third party, 3) relief of a legal obligation owed to the party receiving property, and 4) other profit transactions.

History

Impact

References

* Donaldson, Samuel. Federal Income Taxation of Individuals: Cases, Problems, and Materials. 2nd Edition.


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