Amount realized definition

What is Amount Realized?

The amount realized is the gain or loss resulting from the sale or exchange of an asset. The amount realized is net of any sales costs incurred. The payment associated with a sale transaction can take many forms, such as cash, replacement with another asset, or the reduction of an existing obligation. The amount realized is used to calculate the taxable gain or loss resulting from a sale or exchange transaction.

How to Calculate the Amount Realized

To calculate the amount realized, subtract all selling expenses from the gross sale price. Selling expenses may include commissions, closing costs, and brokerage fees. Thus, the formula for the amount realized is as follows:

Gross selling price - (Commissions + Closing costs + Brokerage fees) = Amount realized

Example of the Amount Realized

Sally sells her house. The gross selling price is $1,000,000. However, she also pays a $50,000 commission, as well as $10,000 in closing costs. This means that the amount realized from the sale is $960,000.

FAQs

Why is the Amount Realized Important for Tax Purposes?

Amount realized is important for tax purposes because it determines the gross proceeds received from the sale or exchange of an asset. It serves as the starting point for calculating capital gain or loss by comparing it to the asset’s adjusted basis. Accurately reporting the amount realized ensures correct tax liability and compliance with IRS requirements.