Amount Realized
Amount realized refers to the total amount a seller receives from the sale or disposition of an asset, property, or security. In the context of accounting and taxation, it is a crucial figure used to calculate the gain or loss resulting from the sale or disposition.
The amount realized is typically calculated by subtracting the selling expenses (such as brokerage fees, commissions, or closing costs) from the gross sale price. The difference between the amount realized and the asset’s adjusted basis (its original cost adjusted for improvements, depreciation, and other factors) is the taxable gain or loss.
Example of Amount Realized
Let’s consider the example of selling stocks.
Scenario:
- You purchased 100 shares of a company’s stock for $50 per share, making your total investment $5,000.
- You later sold the stocks for $80 per share, resulting in a gross sale price of $8,000.
- You incurred a brokerage fee of $100 for both the purchase and sale of the stocks.
Now, let’s calculate the amount realized and the taxable gain:
- Calculate the adjusted basis: Your adjusted basis would be the total investment plus the purchase brokerage fee. In this case, it is $5,000 (total investment) + $100 (purchase brokerage fee) = $5,100.
- Calculate the amount realized: To find the amount realized, subtract the selling expenses (in this case, the sale brokerage fee) from the gross sale price. So, $8,000 (gross sale price) – $100 (sale brokerage fee) = $7,900.
- Determine the taxable gain: Subtract the adjusted basis from the amount realized to get the taxable gain. In this example, it would be $7,900 (amount realized) – $5,100 (adjusted basis) = $2,800.
In this example, your amount realized from the sale of the stocks is $7,900, and the taxable gain is $2,800.
