In this talk, I’ll go through the general gain or loss calculation, for when you sell or dispose of property.
When you sell a property, the amount you receive as payment is called the sale price or the proceeds from the sale. While this amount is usually the cash you receive for selling the property, it also includes everything of benefit that you receive for the property. If the buyer assumes loans that you had on the property, that amount is included in the sale price. If the buyer trades you items or services for the property, then the FMV should be included. If you will receive payment over multiple years, then still include the total amount you will be paid as the sales price, but keep in mind that interest income must be accounted for first. Refer to my video on installment sales for more information about receiving payment over multiple years. If you dispose of an asset, without selling it, you may have 0 proceeds or if you receive any amount for disposing of the property, for example scrap metal payments, then include that amount as the proceeds.
To calculate the gain or loss on sale of a property, subtract your adjusted basis from the total sale price. Often, the adjusted basis is the cost basis - which is what you paid to purchase it. Cost basis can be increased by expenses you paid to get the asset ready for its intended use, such as shipping costs and installation costs. Additionally, there are detailed rules for costs that can be added to or subtracted from cost basis, for calculating adjusted basis - for different types of property and situations.
So, if your adjusted basis is less than the sale price, you have a gain - but if the adjusted basis is more than the sale price, you have a loss.
So how does this gain or loss affect your taxes? Well, you can’t say on an individual basis - meaning looking at 1 property you sold, you can’t know how it will be taxed because it must be netted with all of your other gains and losses. This includes amounts that flow through to you, like activity in mutual funds, retirement plans, a partnership, or other types of investments.
Refer to my video for how gains and losses are taxed and the netting process.
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