In this talk, I’ll go through the general gain or loss calculation, for sale of an asset.
When you sell a property, the amount you obtain as payment is named the sale price or the proceeds from the sale. While this amount is usually the dollars you obtain for selling the property, it also contains everything of benefit that you obtain 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 equipment or services for the property, then the fmv could be included. If you will obtain payment over multiple years, then still contain the total amount you will be paid as the sales price, but hold in mind that interest income gotta be accounted for first. Refer to my video on installment sales for more stats about receiving payment over multiple years. If you dispose of an asset, without selling it, you may have 0 proceeds or if you obtain any amount for disposing of the property, for example scrap metal payments, then contain 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 buy it. Cost basis can be increased by expenses you paid to obtain the asset ready for its intended use, such as shipping costs and installation costs. Additionally, there are detailed terms for costs that can be added to or subtracted from cost basis, for calculating adjusted basis - for different types of property and cases.
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 claim on an individual basis - meaning looking at 1 property you sold, you can’t know how it will be taxed because it gotta be netted with all of your another gains and losses. This contains amounts that flow through to you, like activity in mutual funds, retirement plans, a partnership, or another types of investments.
Refer to my video for how gains and losses are taxed and the netting process.
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