What is Amount Realized?
Amount realized is the amount received from the sale of an asset. The amount realized encompasses all forms of compensation, including cash, the fair market value of any property received, and any liabilities that the purchaser assumes as a result of the transaction.
The amount realized does not include transaction costs such as commissions and other related fees. The term realized income is different than amount realized. Realized income is money you receive for goods or services.
Understanding Amount Realized
The amount realized is used to calculate realized 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.
Example of an Amount Realized Calculation
The total consideration will also include any liabilities assumed, as in this example:
Suppose you have sold a property that has an outstanding mortgage of $75,000. The buyer pays you $40,000 and assumes the mortgage. In this case, you would have realized a total gain of $115,000 ($40,000 payment + $75,000 mortgage transferred).