Recognition (tax)
Encyclopedia
In United States tax law recognition is among a series of prerequisites to the manifestation of gains and losses used by the Internal Revenue Service
for determining federal income tax liability. First in the series for manifesting gain and loss a taxpayer must "realize
" gain and loss. This word "realize" is a term of art that refers to the realization requirement where the taxpayer must receive or lose something of monetary value. Once the realization requirement is met, gains and losses are taken into account only to the extent that they are also "recognized."
Internal Revenue Code
section 1001(c) provides that gains and losses, if realized, are also recognized unless otherwise provided in the Code. This default rule has several exceptions, called “nonrecognition” rules, which are scattered throughout the Code. These exceptions often apply in situations in which a taxpayer shifts his investment from one piece of property to another piece of property. In such cases, where the taxpayer is merely continuing his investment, it makes sense to defer the recognition of any gain or loss realized until the taxpayer truly ends the investment.
Sections 1031-1045 provide the most commonly implicated nonrecognition rules, including the section 1031 rule for Like-Kind Exchanges.
and the section 1211(b) limitation on capital losses in a single year.
Internal Revenue Service
The Internal Revenue Service is the revenue service of the United States federal government. The agency is a bureau of the Department of the Treasury, and is under the immediate direction of the Commissioner of Internal Revenue...
for determining federal income tax liability. First in the series for manifesting gain and loss a taxpayer must "realize
Realization (tax)
Realization is a requirement in determining what must be included as income subject to taxation. It should not be confused with the separate concept of Recognition .-Defining Income:...
" gain and loss. This word "realize" is a term of art that refers to the realization requirement where the taxpayer must receive or lose something of monetary value. Once the realization requirement is met, gains and losses are taken into account only to the extent that they are also "recognized."
Internal Revenue Code
Internal Revenue Code
The Internal Revenue Code is the domestic portion of Federal statutory tax law in the United States, published in various volumes of the United States Statutes at Large, and separately as Title 26 of the United States Code...
section 1001(c) provides that gains and losses, if realized, are also recognized unless otherwise provided in the Code. This default rule has several exceptions, called “nonrecognition” rules, which are scattered throughout the Code. These exceptions often apply in situations in which a taxpayer shifts his investment from one piece of property to another piece of property. In such cases, where the taxpayer is merely continuing his investment, it makes sense to defer the recognition of any gain or loss realized until the taxpayer truly ends the investment.
Sections 1031-1045 provide the most commonly implicated nonrecognition rules, including the section 1031 rule for Like-Kind Exchanges.
Impact
Recognition is mostly a matter of timing; the issue is not whether income or loss is taken into account, but when. The time of recognition may matter for a number of reasons, including the time value of moneyTime value of money
The time value of money is the value of money figuring in a given amount of interest earned over a given amount of time. The time value of money is the central concept in finance theory....
and the section 1211(b) limitation on capital losses in a single year.