You figure gain or loss on a sale or trade of property by comparing the amount you realize with the adjusted basis of the property. taxmap/pubs/p550-022.htm#en_us_publink100010427
If the amount you realize from a sale or trade is more than the adjusted basis of the property you transfer, the difference is a gain. taxmap/pubs/p550-022.htm#en_us_publink100010428
If the adjusted basis of the property you transfer is more than the amount you realize, the difference is a loss. taxmap/pubs/p550-022.htm#en_us_publink100010429
The amount you realize from a sale or trade of property is everything you receive for the property. This includes the money you receive plus the fair market value of any property or services you receive.
If you finance the buyer's purchase of your property and the debt instrument does not provide for adequate stated interest, the unstated interest that you must report as ordinary income will reduce the amount realized from the sale. For more information, see Publication 537.
If a buyer of property issues a debt instrument to the seller of the property, the amount realized is determined by reference to the issue price of the debt instrument, which may or may not be the fair market value of the debt instrument. See Regulations section 1.1001-1(g). However, if the debt instrument was previously issued by a third party (one not part of the sale transaction), the fair market value of the debt instrument is used to determine the amount realized.taxmap/pubs/p550-022.htm#en_us_publink100010430
Fair market value is the price at which property would change hands between a buyer and a seller, neither being forced to buy or sell and both having reasonable knowledge of all the relevant facts. taxmap/pubs/p550-022.htm#en_us_publink100010431
You trade A Company stock with an adjusted basis of $7,000 for B Company stock with a fair market value of $10,000, which is your amount realized. Your gain is $3,000 ($10,000 – $7,000). If you also receive a note for $6,000 that has an issue price of $6,000, your gain is $9,000 ($10,000 + $6,000 – $7,000).taxmap/pubs/p550-022.htm#en_us_publink100010432
A debt against the property, or against you, that is paid off as a part of the transaction or that is assumed by the buyer must be included in the amount realized. This is true even if neither you nor the buyer is personally liable for the debt. For example, if you sell or trade property that is subject to a nonrecourse loan, the amount you realize generally includes the full amount of the note assumed by the buyer even if the amount of the note is more than the fair market value of the property. taxmap/pubs/p550-022.htm#en_us_publink100010433
You sell stock that you had pledged as security for a bank loan of $8,000. Your basis in the stock is $6,000. The buyer pays off your bank loan and pays you $20,000 in cash. The amount realized is $28,000 ($20,000 + $8,000). Your gain is $22,000 ($28,000 – $6,000).taxmap/pubs/p550-022.htm#en_us_publink100010434
If you trade property and cash for other property, the amount you realize is the fair market value of the property you receive. Determine your gain or loss by subtracting the cash you pay and the adjusted basis of the property you trade in from the amount you realize. If the result is a positive number, it is a gain. If the result is a negative number, it is a loss.taxmap/pubs/p550-022.htm#en_us_publink100010435
You may have to use a basis for figuring gain that is different from the basis used for figuring loss. In this case, you may have neither a gain nor a loss. See No gain or loss
in the discussion on the basis of property you received as a gift under Basis Other Than Cost