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Once the realization requirement is met, gains and losses are taken into account only to the extent that they are also "recognized." Internal Revenue Code section 1001(c) [1] provides that gains and losses, if realized, are also recognized unless otherwise provided in the Code. This default rule has several exceptions, called "nonrecognition ...
In financial accounting (CON 8.4 [1]), a gain is when the market value of an asset exceeds the purchase price of that asset. The gain is unrealized until the asset is sold for cash, at which point it becomes a realized gain. This is an important distinction for tax purposes, as only realized gains are subject to tax.
A like-kind exchange is a type of "non-recognition provision". According to section 1001(c) of the Internal Revenue Code, all realized gains and losses must be recognized "except as otherwise provided in this subtitle". A like-kind exchange is one of the qualified exceptions, serving as the proto-typical "non-recognition provision".
In order to avoid the cumbersome, abrasive, and unpredictable administrative task of valuing assets annually to determine whether their value has appreciated or depreciated, § 1001(a) of the Code defers the tax consequences of a gain or loss in property until it is realized through the "sale or disposition of [the] property."
In accounting, the revenue recognition principle states that revenues are earned and recognized when they are realized or realizable, no matter when cash is received. It is a cornerstone of accrual accounting together with the matching principle. Together, they determine the accounting period in which revenues and expenses are recognized. [1]
Long-term capital gains tax rates are often lower than ordinary income tax rates. Capital gains are taxed at rates of zero, 15 and 20 percent, depending on the investor’s total taxable income.
For profits on your main home to be considered long-term capital gains, the IRS says you have to own the home and live in it for two of the five years leading up to the sale. In this case, you ...
First, nonrecognition is conferred because it is said that the sale or exchange at issue usually involves a mere change in the form of an investment and not a change in the substance of that investment. Second, the realized gain or loss usually never disappears: the unrecognized gain or loss typically carries into the new asset.