Taxpayer triggers a realization event by disposing of an asset

Taxpayer triggers a realization event by disposing of an asset

Compare and contrast different ways in which a taxpayer triggers a realization event by disposing of an asset.

A realization event for tax purposes is created in many ways. Virtually any disposal will result in a sale or other disposition. These include a sale, trade, gift to charity, disposal to the landfill, or destruction in a natural disaster. In a sale or trade (exchange), the taxpayer receives something of value in return for the asset. In contrast, a charitable contribution, disposal, or destruction from a natural disaster generally results in a loss of any remaining basis in the asset without compensation (unless reimbursed by insurance).