When you sell real estate, stock, or other securities, the financial institutions involved report the sale to the IRS. As a result, you’ll want to report the gross proceeds of the sale on your tax return, regardless of whether there was a gain or loss. By reporting the sale on your return, you can also show what you paid when you purchased the investment. This enables you to demonstrate the net proceeds of the sale.
The good news is that you typically only pay tax if the net proceeds of the sale are more than zero. If the net proceeds of the sale are less than zero, you may be able to deduct that loss.
Keep in mind that if you do NOT report the sale on your tax return, the IRS will assume that the gross proceeds of the sale are actually the net proceeds of the sale, and you will likely be taxed on the full amount. That’s why it’s vital to report both the gross proceeds and the cost basis on your return.
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