Difference between realization and recognition in a property transaction: Realization of gain or loss occurs when a transaction takes place $($that is$,$ there has been an exchange of property rights between two persons$).$ If the "amount realized" exceeds the taxpayer's tax basis in the property sold or exchanged, then a gain is realized. If the amount realized is less than the tax basis of the property, a loss is realized. Recognition is the necessity for the owner to include the gain or loss realized in calculating taxable income. Before gain or loss can be recognized, it first must be realized.

$1.$ What information must a taxpayer gather to determine the amount realized in a property transaction?

$2.$ What information must a taxpayer gather to determine the adjusted basis of property exchanged in a property transaction?