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When a taxpayer sells an asset, what is the difference between realized and recognized gain or...

When a taxpayer sells an asset, what is the difference between realized and recognized gain or loss on the sale? Please explain in depth with example.

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Answer #1

When a taxpayer sells an asset, what is the difference between realized and recognized gain or loss on the sale?

Recognized gain or loss on the sale the difference between the basis of the asset and the sale price or it is the exact profit earned when you make a sale of asset. In the current example, if you have sold your asset for $100 and it has cost of $70, you have made a profit of $30 i.e. recognized gain of $30.

Realized gain or loss on the sale is the exact money you have actually earned while selling an asset. As per current example, you have a recognized gain of $30 and assume you have incurred $5 as commission & brokerage charges. Then the realized gain is $25 (i.e. 30-5).

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