[ramo10]

Im a little unclear as to the difference between Realization and recognition of a gain for tax purposes. Can someone please explain me their definition, and the difference for GAAP purposes versus tax.

[Anonymous]

For the purposes of a like-kind exchange, I'll try and explain you the differences.

Say you're trading a car that you bought for 20,000, less 5,000 accumulated depreciation (thus 15,000 NBV) for a car worth 25,000.

Gain realized is basically how much you get from the trade, versus how much you're giving up. Therefore, your gain realized from the trade of this car would be 25,000 minus your NBV of 15,000, resulting in a 10,000 realized gain.

Second would be Gain recognized. These are different for different topics. For like-kind exchanges, your gain realized would be the LESSER OF gain realized, or taxable boot received.

Since this taxpayer did not receive any boot, his boot received would be 0. Compared to the gain realized of 10,000, taxable boot is smaller, therefore he has a 0 recognized gain.

I hope that lets you grasp the concept, I can add more to it if you'd like.

[jelly]

Realized – transactions get cashed out. Ex: You have a guitar you bought for $10 a year ago, today it's worth $25; you have an unrealized gain of $15. It becomes realized if you sell the guitar, otherwise you have an unrealized $15 gain.

Recognized – transactions subject to tax. The $15k gain from selling your guitar is subject to tax.

Couldn't pass again!

[MrsBing]

Realized is your actual gain or loss. So if you sold something that cost your $20 for $30, you have a realized gain of $10. Recognized is what you're actually recording in the accounting records or tax records depending on the rules/regulations subject to what you sold. Depending on the rules, the recognized gain/loss (what's being recorded) may be different than what was realized.

Becker, Wiley Test Bank, and Ninja 10 Point Combo!

FAR: 89
REG: 87
AUD: 92
BEC: 75
Ethics: 90

Licensed Arizona CPA

[P or F.. I think Im gonna BARF]

(REAL)ized is what (REAL)ly happened in the (REAL) world.

(REC)ognized is what gets (REC)orded

Example: Interest received on Municipal Bonds

This is realized in both GAAP and TAX since it (REAL)ly happened.

This is (REC)orded (recognized) in GAAP, but not TAX.

B - (08/29/2013) Passed
A - (07/02/2013) Passed
R - (10/17/2013) 73 - Rematch
F - (05/29/2013) Passed

[Author]

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