Legal Definitions - amount realized

Amount Realized

In tax law, the amount realized refers to the total value a taxpayer receives when they sell or exchange an asset. This comprehensive figure includes not only any cash received but also the fair market value of any property or services obtained in return, and any debts related to the asset that the buyer agrees to assume or pay off. It represents the full economic benefit a seller gains from disposing of an asset.

Here are some examples to illustrate this concept:

• Selling a Rental Property: Imagine a landlord, Mr. Henderson, sells a small apartment building. The buyer pays him $200,000 in cash and also agrees to take over the existing mortgage of $150,000 that was still on the property. In this scenario, Mr. Henderson's amount realized from the sale would be $350,000 (the $200,000 cash plus the $150,000 mortgage debt assumed by the buyer). This illustrates how assumed debt contributes to the total value received.

• Trading a Collectible for Services: Ms. Chen, an art collector, decides to sell a valuable antique vase. Instead of cash, a local interior designer offers to redesign her entire living room in exchange for the vase. The fair market value of the interior design services is estimated at $15,000. Here, Ms. Chen's amount realized from the sale of the vase is $15,000, representing the value of the services she received in exchange for her asset.

• Selling Shares for Other Property: A startup founder, Dr. Lee, sells a portion of his company shares to an investor. Instead of cash, the investor gives Dr. Lee a parcel of undeveloped land, which has a current market value of $50,000. Dr. Lee's amount realized from selling his shares is $50,000, which is the fair market value of the property he received in the exchange.