¶ … realized and recognized gain or loss is really in the characterization of reporting taxes. When one sells an asset there may be federal income tax liability if there is a profit, or a deduction if allowed, with a loss. The IRS distinguishes between recognized gains/losses and realized gains/losses. One way to remember the model is that a recognized gain might create a tax liability, but the realized gain will help determine the amount of that liability. Realized gain or loss is the total amount of gains or losses that result from the sale of securities. A realized gain is the excess you receive from adjusted cost basis over the proceeds from the sale; a loss is the monetary value of any loss resulting from a trade. Recognized gains or losses are an income-tax base paradigm.
For tax purposes, a recognized gain considers the difference between the basis of the asset and the sales price. For instance, if you own a share of stock with the basis of $100 and you sell it for $150 you earn a recognized gain of $50. You often must pay capital gains tax on this depending on your income structure. Realized gains refer to the actual amount of money earned in the sale, less any costs. In our above example, if the brokerage and other fees totaled $15, then you would no longer have a gain of $50, but a gain of $35 (Evans, 2012).
Question B - The recipient of a gift does not pay taxes or report...
Receipts of gift property have different tax consequences than on inherited property. Gains or losses on property received as a gift are calculated by looking at the original owner's cost basis. So, when the property is given, the recipient receives both the property and the property's cost basis, as well as the holding period to determine the gain as short- or long-term. The basis of gift property is defined as the original owners cost basis plus or minus appropriate adjustments (repairs, improvements, expenses for sales, etc.). These adjustments that reduce basis also include depreciation claimed for rentals, etc. The recipients gain or loss of the gift property will be the selling price less the adjusted cost basis. The adjusted basis is the net cost of the asset after adjustment tax appropriate items (Legal Information Institute, 2012).
Question C- Capital assets have three definitions; one for financial economics, one for accounting systems and one for tax purposes. In fiscal economics, capital assets are any assets used to generate income as opposed to assets used for enjoyment or consumption. This becomes important because of individual tastes. In governmental accounting, capital assets are any asset used in operations with an initial useful life that is greater than one reporting period. In tax law,…
