 Hello and welcome to the session in which we will discuss the concept of the third and non-recognized gains and losses To say it in another way. We're gonna have to differentiate between what is recognized and what's realized simply put We're gonna have a realized gain and part of that realized gain will be recognized So we need to understand what is realized and what's recognized well Let's do a quick review of what we already learned We learned that if we take the amount realized what is the amount realized it's called the consideration received So when we sell an asset when we sell a piece of property We're gonna be receiving something and we talked about we have one whole session and about amount realized for simplicity I'm just gonna say we only received cash just to kind of get started here We received one hundred thousand dollar cash for something that we sold then we take the amount realized Then we deduct from that the adjusted basis of the property again We had a session computing the adjusted basis of the property. Let's assume the adjusted basis is 70,000 what we have under those circumstances We received 100,000 the adjusted space the adjusted basis is 70. We have a realized gain of 30,000 That's actually what happened the gain is realized That's what actually happened. We sold something for a hundred thousand with an adjusted basis of 70 Now that 30,000 May not be taxable Why well for many reasons we're gonna see why that's what the whole lecture is about The gain the whole gain or some of the gain might be the third What does the third the third means push it down into the future push it down to the future It means like kick the can down don't recognize the gain now We're gonna recognize it later or it might be the gain not taxable by law for some reason non taxable So after we deduct the deferred and non taxable and let's assume for the sake of this example 10,000 is the third What's left is recognized? recognized is the amount that is Taxable taxable means that's the amount that's gonna go on the tax return and increase our taxable income So of the 30,000 simply put what we did we have a 30,000 of realized 10,000 of it is the third the third means we're gonna Push it down to the push it down the road and how do we do that? We'll see later on. What does that mean? How do we execute this 10,000 in? Pushing it down the road and the 20,000 is actually we can say taxable taxable now So this is the deferred you can look at it in another way is taxable later, and you will see how it's taxable later Now same concept will be with a loss. So let's assume we sold something for a hundred thousand and the adjusted basis was 130 now we have a realized loss of 30,000 same concept That loss could be Deferred for later and sometime it may not be allowed all together by law and whatever is left Let's assume 10,000 is the third what's left is recognized It means this 20,000 of losses will be deductible because it's recognized That's the amount that that we are going to deduct on the income tax return It's deductible. So this is the concept realized versus recognized before we proceed any further I have a public announcement about my company farhat lectures comm Farhat accounting lectures is a supplemental educational tool That's gonna help you with your CPA exam preparation as well as your accounting courses My CPA material is aligned with your CPA review course such as Becker Roger Wiley Gleam miles my accounting courses are aligned with your accounting courses broken down by chapter and topics my resources consists of Lectures multiple choice questions through false questions as well as exercises go ahead start your free trial today No obligation no credit card required Now we're gonna look at a list of transactions that create those deferred gains and deferred losses to the furl and non-taxable gain generally stem from the following transaction Qualified like kind exchanges and we're gonna have a one-hole session about this 1031 exchanges Involuntary conversions the sale of properties principle residents divorce property settlement installment sales and believe me we're gonna have a session for involuntary conversion Taxpayer principles of residence sale divorce divorce property settlement will be very short and installment sales at the same also Buying the treasury capital treasury capital and stock transaction as well Also in contrast to the third and this allowed losses generally stem from Related party transactions, which is where you cannot either have to defer or not take the loss The disposition of personal use property for example by law you cannot get the loss and wash sales Transaction so notice every time I have a list if you know anything about far hat I'm gonna go over this list in detail step by step Starting with qualified like kind exchange What should you do now go to far hat lectures whether you you are a CPA or an enrolled agent candidate or a student start to work? MCQs true false that's gonna help you understand the concept better Good luck study hard and this concept is important. So make sure you know the difference between recognized gain recognized loss and Realized gain and realized loss. Good luck and study say stay safe