Realized vs. Recognized Gain in a 1031 Exchange

 Realized vs. Recognized Gain

Many taxpayers mistakenly confused realized gain and recognized gain as one in the same, but the truth is that these two terms mean separate and distinct things. In this article, we are going to talk about the difference between realized and recognized gain in a 1031 exchange.

Realized Gain

In simple terms, realized gain is the benefit you receive when you sell a piece of property. This is true whenever you sell real estate – whether it’s in a traditional sale or as part of a 1031 exchange. Calculating your realized gain is done by taking the sale price of the property, subtracting closing costs, and subtracting your adjusted tax basis in the property.

Recognized Gain

Recognized gain is different than realized gain in that it represents the taxable portion of your realized gain. When selling property in a traditional sale, your recognized gain and realized gain are often the same because you are incurring a tax liability via the transaction. But in a 1031 exchange, this works a bit differently. The benefit of a 1031 exchange is that it allows you to defer this tax liability. So it’s important to distinguish between your realized and recognized gain.

Get Your 1031 Exchange Going Today!

A qualified intermediary can help you get your documents together, advise you of your options, and answer all of your questions throughout the entirety of your exchange. At Commercial Partners Exchange Company, we have twenty years of experience helping clients with their exchanges. Get your exchange of real property going today by giving our qualified intermediaries a call. Our main office is located in downtown Minneapolis but we help clients throughout the United States.

  • Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

 

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