In a bargain sale, how is the taxable gain calculated for the seller?

In a bargain sale, the taxable gain for the seller is calculated based on the difference between the original cost of the asset and the selling price. This method reflects the principles of capital gains taxation, where the gain is defined as the difference between what the seller has invested in the asset (original cost or basis) and what they actually receive from the sale (selling price).

When an asset is sold for less than its fair market value, a bargain sale occurs. In this case, the seller may have a gain that is recognized for tax purposes. The seller's adjusted basis is taken into account, as this is what determines the taxable portion of the gain, aligning it closely with the profit realized on the sale. The difference between the selling price (considerably lower in a bargain sale) and the adjusted basis is critical in assessing the gain for tax reporting.

Calculating the taxable gain solely based on the fair market value would not accurately reflect the economic reality of the transaction, as the seller isn't receiving the asset's full value. Thus, focusing on the selling price in relation to the original cost efficiently captures the essence of the bargain sale and the resultant tax implications. This methodology ensures that the taxation reflects the actual economic benefit received from the sale, rather than