How Do I Figure a Gain or Loss? Table 3-1 Sweden AlbergoThe following are definitions of basis, adjusted basis, amountrealized, fair market value, and amount recognized. You need to knowthese definitions to figure your gain or loss. Basis.The cost or purchase price of property is usually its basis forfiguring the gain or loss from its sale or other disposition. However,if you got the property by gift, inheritance, or in some way otherthan buying it, you must use a basis other than its cost. For moreinformation about basis, see Publication 551,Basis of Assets. Adjusted basis.The adjusted basis of property is your original cost or other basisplus certain additions, and minus certain deductions such asdepreciation and casualty losses. Amount realized.The amount you realize from a disposition is the total of all moneyyou receive plus the fair market value accommodation in Arnheimof all property orservices you receive. The amount you realize also includes any of yourliabilities that were assumed by the buyer and any liabilities towhich the property you transferred is subject, such as real estatetaxes or a mortgage. Fair market value.Fair market value is the price at which the property would changehands between a buyer and a seller when both have reasonable knowledgeof all the necessary facts and neither has to buy or sell. Amount recognized.Your gain or loss realized from a disposition of property isusually a recognized gain or loss for tax purposes. Recognized gainsmust be included in gross income. Recognized losses are deductiblefrom gross income. However, a gain or loss realized from certainexchanges of property is not recognized. See Nontaxableexchanges, earlier. Also, you cannot deduct a loss from thedisposition of property held for personal use. Is My Gain or LossOrdinary or Capital? You must classify your gains and losses as either ordinary orcapital gains or losses. You must do this to figure your net capitalgain or loss. Generally, you will have a capital gain or loss if youdispose of a capital asset. For the most part, everything you own anduse for personal purposes or investment is a capital asset. Certain property you use in your business is not a capital asset. Again or loss from a disposition of this property is an ordinary gainor loss. However, if you held the property for more than 1 year, youmay be able to treat the gain or loss as a capital gain or loss. Thesegains and losses are called section 1231 gains and losses. For more information about ordinary and capital gains and losses,see chapters 2and 3 in Publication 544. Is My Capital Gain or LossShort Term or Long Term? If you have a capital gain or loss, you must determine whether itis long term or short term. Whether a gain or loss is long or shortterm depends on how long you own the property before you dispose ofit. The time you own property before disposing of it is called theholding period. Table 3-2 For more information about short-term and long-term capital gainsand losses, see chapter 4 of Publication 544.