Amount Realized
Amount realized is the total amount received from a sale transaction. The amount realized differs from realized income, which is money you receive for goods or services, and is used to calculate realized taxable gains and losses. Amount realized is used to calculate realized taxable gains and losses. The amount realized is, in this case, a realized gain of $112,000 ($40,000 payment + $75,000 mortgage transferred - $3000 selling costs). It encompasses all forms of compensation, including cash, the FMV of any property received, and any liabilities that the purchaser assumes as a result of the transaction.
What Is Amount Realized?
Amount realized is the total amount received from a sale transaction. It factors in cash, the fair market value (FMV) of any assets, existing liabilities, as well as sales expenses.
Understanding Amount Realized
Amount realized is the amount received from the sale of an asset or financial instrument. It encompasses all forms of compensation, including cash, the FMV of any property received, and any liabilities that the purchaser assumes as a result of the transaction. It also factors in selling expenses, such as redemption fees, advertising and legal fees, commissions, and exit charges.
The amount realized differs from realized income, which is money you receive for goods or services, and is used to calculate realized taxable gains and losses. To calculate a realized gain or loss, take the difference of the total consideration given and subtract the cost basis. If the difference is positive, it is a realized gain. If the difference is negative, it is a realized loss.
Amount realized is different from amount recognized, which is defined as taxable income received or a deductible loss.
Amount Realized Calculation
The total consideration will also include any liabilities assumed, as illustrated in this example:
Suppose you have sold a property that has an outstanding mortgage of $75,000. Selling costs are $3,000. The buyer pays you $40,000 and assumes the mortgage.
The amount realized is, in this case, a realized gain of $112,000 ($40,000 payment + $75,000 mortgage transferred - $3000 selling costs).
Related terms:
Amount Recognized
Amount recognized is income or loss you must report on your tax return or on a financial statement. read more
Asset
An asset is a resource with economic value that an individual or corporation owns or controls with the expectation that it will provide a future benefit. read more
Basis Value
Basis value is the price of a fixed asset for taxation purposes. read more
Capital Gains Tax
A capital gains tax is a levy on the profit that an investor gains from the sale of an investment such as stock shares. Here's how to calculate it. read more
Cost Basis
Cost basis is the original value of an asset for tax purposes, adjusted for stock splits, dividends and return of capital distributions. read more
Fair Market Value (FMV)
Fair market value is the price of an asset when both buyer and seller have reasonable knowledge of the asset and are willing and not pressured to trade. read more
Financial Instrument
A financial instrument is a real or virtual document representing a legal agreement involving any kind of monetary value. read more
Mortgage
A mortgage is a loan typically used to buy a home or other piece of real estate for which that property then serves as collateral. read more
Net Realizable Value (NRV)
Net realizable value is the value of an asset that can be realized upon its sale, minus a reasonable estimation of the costs involved in selling it. read more